Using the same information as in E14-22B and E14-24B above, answer the following questions related to Zettlein Bank (creditor).

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.

In E14-24B, 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.

Instructions

(a) Compute the loss Zettlein Bank will suffer under this new term modification. Prepare the journal entry to record the loss on Zettlein’s books.

(b) Prepare the interest receipt schedule for Zettlein Bank after the debt restructuring.

(c) Prepare the interest receipt entry for Zettlein Bank on December 31, 2015, 2016, and 2017.

(d) What entry should Zettlein Bank make on January 1,2018?