Payment schedule-barkley company after debt restructuring


On the year December 31, 2012, the American Bank enters to a debt restructuring agreement with Barkley Company, which is now experiencing the financial trouble. The bank agrees to restructure a 12%, issued at par, $3,199,000 note receivable by the given modifications:

a) Decreasing the principal obligation from $3,199,000 to $2,559,200.

b) Extending the maturity date from December 31, 2012, to January 1, 2016.

c) Decreasing the interest rate from 12% to 10%.

Barkley pays interest at the end of each year. On January 1, 2016, Barkley Company pays $2,559,200 in cash to the Firstar Bank.

a) Will the gain recorded by Barkley be equivalent to the loss recorded by the American Bank under debt restructuring? 

b) Can Barkley Company record a gain beneath the word modification illustrated above?

c) Supposing that the interest rate Barkley must use to compute interest expense in future periods is 1.4276%, make the interest payment schedule of the note for Barkley Company after the debt restructuring.

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