Dilemma Inc. owes Stauskas Bank a $250,000, 10-year, 15% note. The note is due today, December 31, 2011. Because Dilemma Inc. is in financial trouble, Stauskas agrees to accept 60,000 shares of Dilemma’s common shares, which are currently selling for $1.40; to reduce the note’s face amount to $150,000; to extend the maturity date to December 31, 2015; and to reduce the interest rate to 6%. Interest will continue to be due on December 31 of each year. (Interest is still outstanding as at December 31, 2011.)
Instructions
(a) Prepare all the necessary journal entries on the books of Dilemma Inc. from the time of the restructuring through maturity.
(b) Prepare all the necessary journal entries on the books of Stauskas Bank from the time of the restructuring through maturity.