On December 31, 2017, Federal Bank enters into a debt restructuring agreement with Carson Company which is experiencing financial difficulties. The bank restructures a $6,000,000 note receivable by:

Reducing the principal obligation from $6,000,000 to $5,000,000.

Extending the maturity date from 12/31/17 to 12/31/20, and

Reducing the interest rate from 12% to 6%.

Interest has been paid up to date as of 12/31/17.

Instructions

Discuss the nature of this transaction, indicating whether any gain or loss is recognized by either party and preparing any 12/31/17 journal entries that may be required by the debtor (Carson).

**I have several questions very similar to this one, so it would be really helpful if you give some explanation with the answer so I can apply the concept to the other questions, thank you!