On December 31 2011 Green Bank enters into a debt #1227

On December 31, 2011, 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,
2011, to December 31, 2014 3. Reducing the interest rate from 12% to 10% Troubled pays
interest at the end of each year. On January 1, 2015, Troubled Inc. pays $1.9 million in cash to
Green Bank. Instructions (a) Discuss whether or not Troubled should record a gain. (b)
Calculate the rate of interest that Troubled should use to calculate its interest expense in future
periods. (c) Prepare the interest payment entry for Troubled on December 31, 2013. (d) What
entry should Troubled make on January 1, 2015? View Solution:
On December 31 2011 Green Bank enters into a debt

ANSWER
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