Use the same information as in E14-22B above except that Zettlein Bank reduced the principal to $6,500,000 rather than $8,000,000. On January 1, 2018, Larkin pays $6,500,000 in cash to Zettlein Bank for the principal.
In E14-22B, On December 31, 2014, Zettlein Bank enters into a debt restructuring agreement with Larkin Company, which is now experiencing financial trouble. The bank agrees to restructure a 12%, issued at par, $10,000,000 note receivable by the following modifications:
1. Reducing the principal obligation from $10,000,000 to $8,000,000.
2. Extending the maturity date from December 31, 2014, to December 31, 2017.
3. Reducing the interest rate from 12% to 10%.
Larkin pays interest at the end of each year. On January 1, 2018, Larkin Company pays $8,000,000 in cash to Zettlein Bank.

Instructions
(a) Can Larkin Company record a gain under this term modification? If yes, compute the gain for Larkin Company.
(b) Prepare the journal entries to record the gain on Larkin’s books.
(c) What interest rate should Larkin use to compute its interest expense in future periods? Will your answer be the same as in E14-22B above? Why or why not?
(d) Prepare the interest payment schedule of the note for Larkin Company after the debt restructuring.
(e) Prepare the interest payment entries for Larkin Company on December 31, of 2015, 2016, and 2017.
(f) What entry should Larkin make on January 1, 2018?