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Journal entries for restructured long-term debt

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Reference no: EM1357028

Your company is in financial trouble and is in the process of reorganizing. Your manager wants to know how you will report on restructuring the debt. Use the following information to help with this assignment.

This is the liability section of your company's balance sheet:

CURRENT LIABILITIES

Accounts payable $972,160

Accrued liabilities 2,071,270

Accrued claims costs 793,620

Federal and other income taxes 19,710

Deferred income taxes 500

Current maturities of long-term debt and

capital lease obligations 50,610

Short-term borrowings 249,250

Total Current Liabilities 4,157,120

LONG-TERM LIABILITIES

Capital lease obligation 54,580

Note outstanding 3,000,000

Mortgage outstanding 608,030

Other liabilities 95,860

Total long-term liabilities 3,758,470

Total Liabilities 7,915,590

Your company has asked the bank to restructure its $3 million note outstanding. The present note has 3 years remaining and pays a current interest rate of 10%. The present market rate for a loan of this nature is 12%. The note was issued at its face value. The bank agrees to accept land in exchange for relinquishing its claim on this note. The land has a book value of $1,950,000 and a fair value of $2,400,000.

Prepare journal entries for debt restructuring.

Reference no: EM1357028

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