Problem - On December 31, 2010, the American Bank enters into a debt restructuring agreement with Barkley Company, which is now experiencing financial trouble. The bank agrees to restructure a 12%, issued at par, $3,000,000 note receivable by the following modifications:
Reducing the principal obligation from $3,000,000 to $2,400,000.
Extending the maturity date from December 31, 2010, to December 31, 2013.
Reducing the interest rate from 12% to 10%.
Barkley pays interest at the end of each year. On January 1, 2014, Barkley Company pays $2,400,000 in cash to American Bank. Answer the following questions related to American Bank (creditor).
(a) What interest rate should American Bank use to calculate the loss on the debt restructuring?
(b) Compute the loss that American Bank will suffer from the debt restructuring. (Round answers to the zero decimal places, e.g. 16,510 and use the rounded amounts in subsequent calculations.)
(c) Prepare the interest receipt schedule for American Bank after the debt restructuring. (Round answers to the zero decimal places, e.g. 16,510 and use the rounded amounts in subsequent calculations.)
(d) Prepare the interest receipt entry for American Bank on December 31, 2012. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)
(e) What entry should American Bank make on January 1, 2014? (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)