At January 1, 2016, Bickley Industries, Inc., owed Stanfield Bank $24 million, under a 10% note due December 31, 2017. Interest was paid last on December 31, 2014. Bickley was experiencing severe financial difficulties and asked Stanfield Bank to modify the terms of the debt agreement. After negotiation Stanfield Bank agreed to:
• Forgive the interest accrued for the year just ended,
• Postpone the due date by one year
• Reduce the remaining three years' interest payments to $2 million each and delay the first payment until December 31, 2017, and
• Reduce the principal amount to $22 million.
Required:
A. Prepare the journal entries by Bickley Industries, Inc. necessitated by the restructuring of the debt at (A) January 1, 2016, (B) December 31, 2017, and (C) December 31, 2018.
B. Prepare the journal entries for Stanfield Bank at (A) January 1, 2016 (assume this is when they first realized that there was an issue), (B) December 31, 2017, and (C) December 31, 2018.