In the latter part of 2014 New Iberia Company experienced

#6477
In the latter part of 2014, New Iberia Company experienced severe financial pressure and was
in default of meeting interest payments on long-term notes of $4,500,000 due on December 31,
2019. The interest rate on the debt was 10%, payable semiannually on June 30 and December
31. In an agreement with Loans-R-Us Corporation, New Iberia obtained acceptance of a change
in principal and interest terms for the remaining five-year life of the notes. The changes in terms
are as follows:(a) A reduction of principal of $500,000.(b) A reduction in the interest rate to
7%.(c) New Iberia agreed to pay on December 31, 2014, both the $450,000 of interest in
arrears and the normal interest payment under the old terms.Instructions:1. Compute the total
dollar difference in cash payments by New Iberia over the five-year period as a result of the
restatement of terms.2. Prepare the journal entries for the restructuring of the debt, payment of
interest under the old terms, and the first two interest payments under the new terms that New
Iberia would make. View Solution:
In the latter part of 2014 New Iberia Company experienced

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