On December 31, 2017, the Shamrock 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, $2,500,000 note receivable by the following modifications:
1. Reducing the principal obligation from $2,500,000 to $2,000,000.
2. Extending the maturity date from December 31, 2017, to January 1, 2021.
3. Reducing the interest rate from 12% to 10%.
Barkley pays interest at the end of each year. On January 1, 2021, Barkley Company pays $2,000,000 in cash to Shamrock Bank. Answer the following questions related to Shamrock Bank (creditor).
1. What interest rate should Shamrock Bank use to calculate the loss on the debt restructuring? (Round answer to 0 decimal places, e.g. 18%.)
Interest rate?
2.(1) Compute the loss that Shamrock Bank will suffer from the debt restructuring. (Round answer to 0 decimal places, e.g. 38,548.)
Loss on restructuring of debt $
(2) Prepare the journal entry to record the loss.
3. Prepare the interest receipt schedule for Shamrock Bank after the debt restructuring.
4. Prepare the interest receipt entry for Shamrock Bank on December 31, 2019
5. What entry should Shamrock Bank make on January 1, 2021?