On December 31, 2020, American Bank enters into a debt restructuring agreement with Blue Company, which is now experiencing financial trouble. The bank agrees to restructure a 12%, issued at par, $ 2,320,000 note receivable by the following modifications:

1.		Reducing the principal obligation from $ 2,320,000 to $ 1,856,000.
2.		Extending the maturity date from December 31, 2020, to January 1, 2024.
3.		Reducing the interest rate from 12% to 10%.

Blue pays interest at the end of each year. On January 1, 2024, Blue Company pays $ 1,856,000 in cash to American Bank.

Part 1

Will the gain recorded by Blue be equal to the loss recorded by American Bank under the debt restructuring? NoYes

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Part 2

Can Blue Company record a gain under the term modification mentioned above? NoYes

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Part 3

Assuming that the interest rate Blue should use to compute interest expense in future periods is 1.4276%, prepare the interest payment schedule of the note for Blue Company after the debt restructuring. (Round answers to 0 decimal places, e.g. 38,548.)

BLUE COMPANY Interest Payment Schedule After Debt Restructuring Effective-Interest Rate
Date		Cash Paid		Interest Expense		Reduction of Carrying Amount		Carrying Amount of Note
12/31/20		$		$		$		$
12/31/21
12/31/22
12/31/23
Total		$		$		$

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Part 4

Prepare the interest payment entry for Blue Company on December 31, 2022. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
December 31, 2022

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Part 5

What entry should Blue make on January 1, 2024? (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
December 31, 2024

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