Question
Sassafras Oil Inc. issued a note payable to Western Bank to finance a new project it was developing. The note was for $300,000, issued at
Sassafras Oil Inc. issued a note payable to Western Bank to finance a new project it was developing. The note was for $300,000, issued at face value, with a 5-year term and interest payable at 6%. Sassafrass project proved to not be technically feasible and caused the company to go into financial distress. The note is due today, October 8th, 2020 and Sassafras does not have the funds to repay the note or the interest. As a result, Western Bank agreed to extend the note due date for two more years interest free and reduce the face value amount to $200,000 in exchange for receiving 10,000 common shares of Sassafras, currently trading at $5 per share. The current market rate of interest is 8% now.
Using a financial calculator or Excel, prepare the necessary journal entries on the books of Sassafras Oil at the time of this refinancing. Please show your calculations/calculator inputs.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started