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kolbaska11 [484]
3 years ago
5

At January 1, 2021, Brainard Industries, Inc., owed Second BancCorp $28 million under a 10% note due December 31, 2023. Interest

was paid last on December 31, 2019. Brainard was experiencing severe financial difficulties and asked Second BancCorp to modify the terms of the debt agreement. After negotiation Second BancCorp agreed to:Forgive the interest accrued for the year just ended.Reduce the remaining two years’ interest payments to $2 million each and delay the first payment until December 31, 2022.Reduce the unpaid principal amount to $20 million.Required:Prepare the journal entries by Brainard Industries, Inc., necessitated by the restructuring of the debt at (1) January 1, 2021; (2) December 31, 2022; and (3) December 31, 2023.
Business
1 answer:
sammy [17]3 years ago
5 0

Answer:

note payable      8,000,000 debit

interest payable 2,800,000 debit

     gain on troubled debt restructuring  10,800,000 credit

--Jan 1st 2021--

interest expense  2,000,000 debit

     interest payable    2,000,000 credit

--Dec 31th 2022--

interest expense  2,000,000 debit

     interest payable    2,000,000 credit

--Dec 31th 2023--

note payable 20,000,000 debit

            cash          20,000,000 credit

--Dec 31th 2023--

Explanation:

28,000,000  // principal

<u>+ 2,800,000</u> // 2020 Dec 31th interest payable

30,800,000

<em><u>after negotiation:</u></em>

2,800,000 interest expense forgiven.

interest payment decrease to 2,000,000 from 2,800,000

Then, principal reduced to 20,000,000 from 28,000,000

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