Troubled Debt Restructuring

Wolfconn Company is having financial difficulties. It has a note payable with a principal amount of $5,000,000, due in three years, plus accrued interest of $750,000 that has not been paid. The note carries an interest rate of 6 percent. Wolfconn and the holder of the note negotiate a restructuring of the note, with the following terms:

•Principal amount is $2,500,000, payable in five years.

• Interest on the note is payable at the end of each of the five years, at a rate of 8 percent per annum.

Required

a. Prepare the entry to record the restructuring of the debt.

b. Suppose the new note had a principal amount of $4,500,000, payable in five years, with interest at 8 percent payable at the end of each of the five years. How would this restructuring be recorded?