Use the information in E14-24 and the assumptions in E14-26 and answer the following questions related to Green Bank (the creditor).
In E14-24
On December 31, 2014, Green Bank enters into a debt restructuring agreement with Troubled Inc., which is now experiencing financial trouble. The bank agrees to restructure a $2-million, 12% note receivable issued at par by the following modifications:
1. Reducing the principal obligation from $2 million to $1.9 million
2. Extending the maturity date from December 31, 2014, to December 31, 2017
3. Reducing the interest rate from 12% to 10%
Troubled pays interest at the end of each year. On January 1, 2018, Troubled Inc. pays $1.9 million in cash to Green Bank. Troubled prepares financial statements in accordance with IFRS.
In E14-26
Use the same information as in E14-24 but assume now that Green Bank reduced the principal to $1.6 million rather than $1.9 million. On January 1, 2018, Troubled Inc. pays $1.6 million in cash to Green Bank for the principal. The market rate is currently 10%.
Instructions
(a) What interest rate should Green Bank use to calculate the loss on the debt restructuring?
(b) Calculate the loss that Green Bank will suffer under this new term modification. Prepare the journal entry to record the loss on Green Bank's books.
(c) Prepare the amortization schedule for Green Bank after the debt restructuring.
(d) Prepare the interest receipt entry for Green Bank on December 31, 2015, 2016, and 2017.
(e) What entry should Green Bank make on January 1, 2018?