Reference no: EM132878660

The bank forgave the overdue interest payment from 2017.

• To enhance the student's knowledge of the FASB Codification and to practice communicating the results of the research in "clear, complete and professional" manner.
• During 2018, Company Z was encountering financial difficulties and seemed likely to default on a $300,000, 10%, three-year note dated January 1, 2016, payable to Third Bank. Interest was last paid on December 31, 2016. On January 3, 2018, Company Z and Third Bank negotiated a modification of terms of the debt agreement.

The terms of the agreement were:

1. The bank agreed to one remaining interest payment of 30,000.
2. The bank agreed to reduce the principle to $275,000, with both principle and interest due January 3, 2019.

Company Z incurred $10,000 of legal fees to negotiate the restructuring of the note.

Instructions:

Problem 1. Explain how the legal costs associated with the troubled debt restructuring should be recorded. Please provide the appropriate reference from the FASB Codification.the codification section(s). Show the citation and explain in own words.

Problem 2. Prepare the journal entry for January 3, 2018, if any. No codification references are required.