Problem 14-14 Oriole Corp. owes Waterway Corp. a 10-year, 10% note in the amount of $382,800 plus $38,280 of accrued interest. The note is due today, December 31, 2017. Because Oriole Corp. is in financial trouble, Waterway Corp. agrees to forgive the accrued interest, $34,800 of the principal, and to extend the maturity date to December 31, 2020. Interest at 10% of revised principal will continue to be due on 12/31 each year. Assume the following present value factors for 3 periods. 24/4% 23/% 21/2% 25/8% 2374% 3% 0.93543 0.93201 0.92859 0.92521 0.92184 0.91514 Single sum Ordinary annuity of 1 2.86989 2.86295 2.85602 2.84913 2.84226 2.82861 Compute the new effective-interest rate for Oriole Corp. following restructure. (Hint: Find the interest rate that establishes approximately $421,080 as the present value of the total future cash flows.) (Round effective interest rate to 3 decimal places, e.g. 4.657%.) Effective interest rate % Prepare a schedule of debt reduction and interest expense for the years 2017 through 2020. (Round answers to 0 decimal places, e.g. 38,548.) SCHEDULE OF DEBT REDUCTION AND INTEREST EXPENSE AMORTIZATION Cash Paid Interest Expense Premium Amortized Carrying Amount of Note Date 12/31/17 $ $ 12/31/18 12/31/19 12/31/20 12/31/20 Compute the gain or loss for Waterway Corp. and prepare a schedule of receivable reduction and interest revenue for the years 2017 through 2020. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to 0 decimal places e.g. 58,971.) The gain or loss for Waterway Corp. $ SCHEDULE OF DEBT REDUCTION AND INTEREST EXPENSE AMORTIZATION Cash Received Interest Revenue Change in Carrying Amount Carrying Amount of Note Date 12/31/17 $ $ 12/31/18 12/31/19 12/31/20 12/31/20 Prepare all the necessary journal entries on the books of Oriole Corp. for the years 2017, 2018, and 2019. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Dec. 31, 2017 Dec. 31, 2018 Dec. 31, 2019 Prepare all the necessary journal entries on the books of Waterway Corp. for the years 2017, 2018, and 2019. (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 Dec. 31, 2017 Dec. 31, 2018 Dec. 31, 2019 Problem 14-14 Oriole Corp. owes Waterway Corp. a 10-year, 10% note in the amount of $382,800 plus $38,280 of accrued interest. The note is due today, December 31, 2017. Because Oriole Corp. is in financial trouble, Waterway Corp. agrees to forgive the accrued interest, $34,800 of the principal, and to extend the maturity date to December 31, 2020. Interest at 10% of revised principal will continue to be due on 12/31 each year. Assume the following present value factors for 3 periods. 24/4% 23/% 21/2% 25/8% 2374% 3% 0.93543 0.93201 0.92859 0.92521 0.92184 0.91514 Single sum Ordinary annuity of 1 2.86989 2.86295 2.85602 2.84913 2.84226 2.82861 Compute the new effective-interest rate for Oriole Corp. following restructure. (Hint: Find the interest rate that establishes approximately $421,080 as the present value of the total future cash flows.) (Round effective interest rate to 3 decimal places, e.g. 4.657%.) Effective interest rate % Prepare a schedule of debt reduction and interest expense for the years 2017 through 2020. (Round answers to 0 decimal places, e.g. 38,548.) SCHEDULE OF DEBT REDUCTION AND INTEREST EXPENSE AMORTIZATION Cash Paid Interest Expense Premium Amortized Carrying Amount of Note Date 12/31/17 $ $ 12/31/18 12/31/19 12/31/20 12/31/20 Compute the gain or loss for Waterway Corp. and prepare a schedule of receivable reduction and interest revenue for the years 2017 through 2020. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to 0 decimal places e.g. 58,971.) The gain or loss for Waterway Corp. $ SCHEDULE OF DEBT REDUCTION AND INTEREST EXPENSE AMORTIZATION Cash Received Interest Revenue Change in Carrying Amount Carrying Amount of Note Date 12/31/17 $ $ 12/31/18 12/31/19 12/31/20 12/31/20 Prepare all the necessary journal entries on the books of Oriole Corp. for the years 2017, 2018, and 2019. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Dec. 31, 2017 Dec. 31, 2018 Dec. 31, 2019 Prepare all the necessary journal entries on the books of Waterway Corp. for the years 2017, 2018, and 2019. (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 Dec. 31, 2017 Dec. 31, 2018 Dec. 31, 2019