On January 1, 2018, City Motors Cor. issued a $1,000,000, 4-year, 10% note at face value to Ahli United Bank. Recently, City Motors Cor. has experienced financial difficulties. On January 1, 2022, City Motors Cor. negotiates a modification on the term of note with Ahli United Bank. Under the modification, Ahli United Bank agrees to reduce the principal of the note to $900,000, and to extend the maturity date to January 1, 2026. The interest rate reduced from 10% to 8%. City Motors' market interest at the time of modification is 12%. (Present value of $1 for 4 periods at 12% is 0.63552, and present value $1of annuity for 4 periods at 12% is 3.03735) Instructions:

(a) Prepare the journal entry for the modification of terms on January 1, 2022.

(b) Prepare the amortization schedule for the years 2022 and 2023. 

(c) Prepare the journal entry for the first interest payment on December 31, 2022.

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