Explain the interest rate assumed by the debtor and creditor

Reference no: EM13682739

On December 31, 2003, the merchant bank enters into a debt restructuring agreement with Shrek Company, which is now experiencing financial trouble. The bank agrees to restructure a 10% issued at par, $1,000,000 note receivable by the following modifications:
1. reducing the principal obligation to $800,000
2. extending the maturity date to 12/31/05
3. reducing the interest rate to 6%
prepare all journal entries from 12-31-03 to 12-31-05 for both parties (debtor and creditor), and explain the interest rate assumed by the debtor and creditor after the restructuring. Show all work.

Reference no: EM13682739

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