Comprehensive-Loan Impairment and Troubled Debt Restructuring
Response to the following problem:
The 10th National Bank has a $200,000, 12% note receivable from the Priday Company that is due on December 31, 2013. On December 31, 2010, the company misses the interest payment due on that date. The bank expects that the company will also miss the next payment, but will pay the principal on the maturity date. On December 31, 2011 the company misses the interest payment due on that date. On December 31, 2012, the company pays half the interest payment due on that date and is not expected to pay the other half
In early January 2013, the bank and the company agree to a loan restructuring because of the financial condition of the company. The bank forgives the unpaid interest, extends the loan to December 31, 2015, and reduces the interest rate to 6%. The market rate for the loan is estimated to be 10% at this time.
Required
1. Compute the value of the impaired loan on December 31, 2010.
2. Prepare the journal entries from 2010 to 2015 for the bank to record the above events.