Moriarty Co. is experiencing financial difficulties. Income has exhibited a downward trend, and the company reported its first loss in company history this past year. The firm has been unable to service its debt and, as a result, has missed two semiannual interest payments. In an attempt to turn the company around, management has negotiated a modification of its debt terms with bondholders. These modified terms are effective January 1, 2013. The bonds are $10,000,000, 10-year, 10% bonds that were issued on January 2, 2008, and currently have an unamortized premium of $210,000.
Prepare the necessary journal entries on Moriarty's books for each of the following independent situations.
Jan.1, 2013
Bondholders agree to forgive past-due interest and reduce the interest rate on the debt from 10% to 5%.
Jan.1, 2013
Bondholders agree to forgive past-due interest and forgive $3,000,000 of the face amount of the debt. If no entry is required, select "No entry required"
Jan.1, 2013
Bondholders agree to forgive past-due interest, reduce the interest rate on the debt from 10% to 6%, and forgive $2,000,000 of the face value of the debt.