Exercise 14-23 (this question has 5 different parts to it)

On December 31, 2014, the American Bank enters into a debt restructuring agreement with Barkley Company, which is now experiencing financial trouble. The bank agrees to restructure a 11%, issued at par, $3,119,000 note receivable by the following modifications:

A.		Reducing the principal obligation from $3,119,000 to $2,495,200.
B.		Extending the maturity date from December 31, 2014, to January 1, 2018.
C.		Reducing the interest rate from 11% to 9%.

1. What interest rate should American Bank use to calculate the loss on the debt restructuring?

interest rate= ?

2a.Compute the loss that American Bank will suffer from the debt restructuring, loss on restructing of debt?

Loss on restructing of debt= ?

2b. Prepare the journal entry to record the loss.

date	account	debit	credit
12/31/14

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

date	cash received	interest revenue	increase in carrying amount	carrying amount of note
12/31/14
12/31/15
12/31/16
12/31/17
total

4. Prepare the interest receipt entry for American Bank on December 31, 2016.

date	account	debit	credit
12/31/16

5. What entry should American Bank make on January 1, 2018?

date	account	debit	credit
12/31/18