How diaz should record interest expense for

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On December 31, 2020, Diaz Corp. is in financial difficulty and cannot pay a $900,000 note with $90,000 accrued interest payable to Cameron Ltd., which is now due. Cameron agrees to accept from Diaz equipment that has a fair value of $435,000, an original cost of $720,000, and accumulated depreciation of $345,000. Cameron also forgives the accrued interest, extends the maturity date to December 31, 2022, reduces the face amount of the note to $375,000, and reduces the market interest rate of 6%, with interest payable at the end of each year.

Question 1: Diaz should record interest expense for 2020 of

  1. $67,500.
  2. $0.
  3. $22,500.
  4. $45,000.

Reference no: EM132466676

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