On December 31, 2011, Green Bank enters into a debt restructuring agreement with Troubled Inc., which is

Question:

On December 31, 2011, Green Bank enters into a debt restructuring agreement with Troubled Inc., which is now experiencing financial trouble. The bank agrees to restructure a $2-million, 12% note receivable issued at par by the following modifications:

1. Reducing the principal obligation from $2 million to $1.9 million

2. Extending the maturity date from December 31, 2011, to December 31, 2014

3. Reducing the interest rate from 12% to 10% Troubled pays interest at the end of each year. On January 1, 2015, Troubled Inc. pays $1.9 million in cash to Green Bank.

Instructions

(a) Discuss whether or not Troubled should record a gain.

(b) Calculate the rate of interest that Troubled should use to calculate its interest expense in future periods.

(d) What entry should Troubled make on January 1, 2015?

Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...