Years ago, February Frost Inc. $($FFI$)$ borrowed $$675,000$ from Sweetheart Corporation $($Sweet$)$ in the form of a $10$ year, $10\%$ note due on December $31,2024.$ FFI has had declining sales in the last two years and has had trouble making their payroll in a timely manner in the currrent year.

It is December $31,2024.$ Since FFI is in financial trouble, Sweet has agreed to extend the maturity date of the not to December $31,2026,$ reduce the principal to $$600,000,$ and reduce the interest rate to $6\%,$ payable annually on December $31.$ When the original note was issued, it was issued at par. The current market rate is $6\%.$ Both companies prepare their financial statements under IFRS.

 

 

a$)$ Is this a settlement of debt or a continuation of debt with midification of terms? $($show your work$)$

b$)$ Prepare the journal entries that are required on FFI's books and financial records on December $31,2024,2025,$ and $2026.$