Using the same information as in E14.22 and E14.24, answer the following questions related to American Bank

Question:

Using the same information as in E14.22 and E14.24, answer the following questions related to American Bank (creditor).

In E14.22

On December 31, 2020, American Bank enters into a debt restructuring agreement with Barkley Company, which is now experiencing financial trouble. The bank agrees to restructure a 12%, issued at par, $3,000,000 note receivable by the following modifications:

1. Reducing the principal obligation from $3,000,000 to $2,400,000.

2. Extending the maturity date from December 31, 2020, to January 1, 2024.

3. Reducing the interest rate from 12% to 10%.

Barkley pays interest at the end of each year. On January 1, 2024, Barkley Company pays $2,400,000 in cash to American Bank.


Instructions

a. Compute the loss American Bank will suffer under this new term modification. Prepare the journal entry to record the loss on American’s books.

b. Prepare the interest receipt schedule for American Bank after the debt restructuring.

c. Prepare the interest receipt entry for American Bank on December 31, 2021, 2022, and 2023.

d. What entry should American Bank make on January 1, 2024?

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...
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Intermediate Accounting

ISBN: 978-1119503668

17th edition

Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfiel

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