Sumu, Inc. is having financial difficulty and has asked Mercy Bank to restructure Sumus $1 million note payable due to the bank on December 31, 2022 in two years(Today is December 31, 2020)at 8% interest. Currently, the rate for this type of loan is 12%. Sumu received face value when the note was originally signed on January 1, 2015 and the cash issued.

Prepare the journal entries for Sumu, Inc. and Mercy Bank for each of the following independent situations. Presented below are four independent situations

a.) Mercy Bank agrees to take an equity interest in Pinker by accepting common stock valued at $800,000 in exchange for relinquishing its claim on this note. The common stock has a par value of $50,000.

b.) Mercy Bank agrees to accept land with a book value of $500,000 and a fair value of $900,000 in exchange for releasing Sumu, Inc from the note.

c.) Mercy Bank agrees to modify the terms of the note, doing away with any interest payments from Sumu, Inc. over the remaining two years of the note.

d.) Mercy Bank reduces Sumus principal balance due to $875,000 and requires no interest this year and interest at 15% in the last year of the note.