NorthCo, owed to Alberta Trust $$11$ million under a $11\%$ note due December $31,2020.$ Note was issued at par and interest is pald at the end of year. NorthCo was experlencing severe financlal dilticurles

and asked Alberta Trust to renegotlate the terms of the debt agreement. Ater negotlatlon, Alberta Trust agreed to:

Extend the maturliy date to Decomber $31,2022.$

Reduce the princlpal amount to $$10$ million.

Feduce the interest rate to $7\%.$

Answer the following questlons using the information given above. Please mave sure your flnal answer$($s$)$ are accurate to the nearest whole number.

a$)$ Determilne if this is a settlement or a modification.

Present value of old debt.

Present value of new debt

This is a setlement or modilication of terms? $($Select one$)$

Marking:

Present value of old debt

Your answer was: $$12$

The correct answer was: $$11,000,000$

You will lose $1$ mark for tels part.

Present value of new debt

Your answer was: $$14$

The correct answer was: $$9,314,991$

$PV=(700,000PMT,11IY,2N,10,000,000FV)=$$$9,314,991$

You will lose $1$ mark for thls part.

Difference

Your answer was: $12\%$

The correct answer WB$5$: $15\%$

Difference $-\frac{\text{\$}11,000,000-\text{\$}9,314,991}{\text{\$}11,000,000}100\%=15\%$

You will lose $1$ mark for thls part.

settlement or modification

Your answer was: Not Answered

The correct answer was: Semlement

Thls is a semlement since the difference is greater than $10\%.$ b$)$ Prepare the journal entries by NorthCo on December $31,2020$ and $2021.$ Enter an appropriate description, and enter the date in the format ddimmm $($Le$.,15/$Jan$).$

Marking:

Journal Entry $1$ : Decomber $31,2020$ entry

You have not Included the 'Notes pajable' acoount in thls joumal entry. Thls will cost you $2$ marks.

You have not included the 'Galh on restructuring of debr' account in Thls joumal entry. Thils will cost you $2$ marks.

'Cash' ahould not have been included in thls joumal entry. Any amounts entered for thls account will not be evaluated.

Journal Entry $2$ : Decomber $31,2021$ entry

You have not included the "interest expense' account in thls joumal entry. Thls will cost you $2$ marks.

You have not included the 'Cash' acoount in thls journal entry. This will cost you $2$ marks.

The following acoounts should not have been Included in tils joumal entry. Bad debt expense, Notes pajable. Any amounts entered for these accounts will not be evaluated.

Amount $=$$$10,000,0007\%$

c$)$ Prepare the journal entrle$5$ for Alberta Trust on Decomber $31,2020$ and $2021.$ Alberta Trust doe$5$ not u$5$e an allowance account for the los$5$ on restructuring. Enter an appropriate

description, and enter the date in the format ddimmm $($Le$,15/$Jan$).$

Marking:

Journal Entry $1$ : December $31,2020$ entry

Ead debt expense' ahould be debled for the amount of $$1,685,009,$ but you have not done thls$.$ Thils will cost you $1$ mark.

You have not included the 'Notes recelvable' account in tils joumal entry. Thils will cost you $2$ marks.

'Allowance for doubtul acoounts' should not have been included in thils joumal entry. Any amounts entered for thls account will not be evaluated.

Amount $-$ PV old debt $-$ PV new debt $-$$$11,000,000-$ $$9,314,991$

Journal Entry $2$ : December $31,2021$ entry

'Cash' ahould be debited for the amount of $$700,000,$ but you have not done thls$.$ Thls will cost jou $1$ mark.

Cash $=$$$10,000,0007\%$

You have not included the 'Notes recelvable' acoount in thls joumal entry. Thils will cost you $2$ marks.

You have not included the "Interest income' account in thls joumal entry. Thls will cost jou $2$ marks.

'Accounts pajable' should not have been included in tels joumal entry. Any amounts entered for tells acoount will not be evaluated.