Italian Pizza is a restaurant franchisor. To finance its expansion plan, the company borrowed $7 million from
Question:
Italian Pizza is a restaurant franchisor. To finance its expansion plan, the company borrowed $7 million from French Finance on Dec. 31, 2012, to be repaid in 10 years. Annual interest on the loan (6%) would be paid on Dec. 31 of each year. Italian Pizza experienced liquidity issues and asked French Finance to restructure the note on Dec. 31, 2017 (after interest due on that day was paid). Both Italian Pizza and French Finance follow IFRS. The prevailing interest rate was 4% on Dec. 31, 2017. Prepare journal entries that Italian Pizza and French Finance were required to make under the following independent assumptions:
(a) French Finance agreed to accept a building from Italian Pizza to settle the loan. The building had a book value of $560,000 (original cost: $2,100,000) and a fair value of $6.02 million. French Finance had already recognized a loss on impairment ($840,000)
Cornerstones of Financial and Managerial Accounting
ISBN: 978-1111879044
2nd edition
Authors: Rich, Jeff Jones, Dan Heitger, Maryanne Mowen, Don Hansen