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Compute the value of the impaired loan on December

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Reference no: EM132888979

Problem - Comprehensive-Loan Impairment and Troubled Debt Restructuring - Tenth National Bank has a $200,000, 12% note receivable from Priday Company that is due on December 31, 2022. On December 31, 2019, Priday 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, 2020, Priday misses the interest payment due on that date. On December 31, 2021, Priday pays half the interest payment due on that date and is not expected to pay the other half.

In early January 2022, 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, 2024, 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, 2019.

2. Prepare the journal entries from 2019 to 2024 for the bank to record the above events. Assume that Priday makes all required payments under the modified agreement.

Reference no: EM132888979

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