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Exercise 14-22

On December 31, 2017, American Bank enters into a debt restructuring agreement with Ivanhoe Company, which is now experiencing financial trouble. The bank agrees to restructure a 12%, issued at par, $3,400,000 note receivable by the following modifications:

1.

Reducing the principal obligation from $3,400,000 to $2,720,000.

2.

Extending the maturity date from December 31, 2017, to January 1, 2021.

3.

Reducing the interest rate from 12% to 10%.

Ivanhoe pays interest at the end of each year. On January 1, 2021, Ivanhoe Company pays $2,720,000 in cash to American Bank.

1.		Reducing the principal obligation from $3,400,000 to $2,720,000.
2.		Extending the maturity date from December 31, 2017, to January 1, 2021.
3.		Reducing the interest rate from 12% to 10%.

	Assuming that the interest rate Ivanhoe should use to compute interest expense in future periods is 1.4276%, prepare the interest payment schedule of the note for Ivanhoe Company after the debt restructuring.

IVANHOE COMPANY Interest Payment Schedule After Debt Restructuring Effective-Interest Rate
Date		Cash Paid		Interest Expense		Reduction of Carrying Amount		Carrying Amount of Note
12/31/17		$		$		$		$
12/31/18
12/31/19
12/31/20
Total		$		$		$

(Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

	Prepare the interest payment entry for Ivanhoe Company on December 31, 2019.

Date	Account Titles and Explanation	Debit	Credit
December 31, 2019

(Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date

Account Titles and Explanation

Debit

Credit

December 31, 2021

	What entry should Ivanhoe make on January 1, 2021?

Date	Account Titles and Explanation	Debit	Credit
December 31, 2021

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