Oakwood Corporation is delinquent on a $2,400,000, 10% note to Second National Bank that was due January 1, 2016. At that time, Oakwood owed the principal amount plus $34,031.82 of accrued interest. Oakwood enters into a debt restructuring agreement with the bank on January 2, 2016.
Required:
Prepare the journal entries for Second National Bank to record the debt restructuring agreement and all subsequent interest receipts.
1. The bank extends the repayment date to December 31, 2019, forgives the accrued interest owed, reduces the principal by $200,000, and reduces the interest rate to 8%.
2. The bank extends the repayment date to December 31, 2019, forgives the accrued interest owed, reduces the principal by $200,000, and reduces the interest rate to 1%.
3. The bank accepts 160,000 shares of Oakwood's $5 par value common stock, which is currently selling for $14.50 per share, in full settlement of the debt.
4. The bank accepts land with a fair value of $2,300,000 in full settlement of the debt. The land is being carried on Oakwood's books at a cost of $2,200,000.