Debt restructuring agreement

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Reference no: EM131286676

On December 31, 2014, Lender Company entered into a debt restructuring agreement with Borrower Company, which is now experiencing financial trouble. Lender agrees to restructure a 12%, $4,000,000 note receivable by agreeing to the following: (1) reducing the principal obligation from $4,000,000 to $3,200,000; (2) extending the maturity date from 12/31/14 to 12/31/17; and (3) reducing the interest rate from 12% to 10%. Borrower has made all interest payments required through the date of the restructuring, makes all restructured interest payments in a timely fashion, and pays the restructured principal amount at the agreed upon time.

a. Prepare Lender's journal entry to record the restructuring on 12/31/14.

b. Prepare Borrower's journal entry to record the restructuring on 12/31/14.

c. Prepare Borrower's journal entry to record the payment of interest on 12/31/17.

Reference no: EM131286676

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