Prepare an effective business amortization

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Reference no: EM132820566

Question - On December 31, 2020, Green Bank enters into a debt restructuring agreement with Sage Hill Inc., which is now experiencing financial trouble. The bank agrees to restructure a $2.2-million, 10% note receivable issued at par by the following modifications:

1. Reducing the principal obligation from $2.2 million to $2.09 million.

2. Extending the maturity date from December 31, 2020, to December 31, 2023.

3. Reducing the interest rate from 10% to 8%.

Sage Hill pays interest at the end of each year. On January 1, 2024, Sage Hill Inc. pays $2.09 million in cash to Green Bank. Sage Hill prepares financial statements in accordance with IFRS 9.

a. Prepare an entry at December 31, 2020, based on the results of your calculation.

b. Prepare an effective business amortization table for the remaining terms of the note.

c. Prepare the interest payment entry for sage hill inc on de 31, 2020 and the entry on January 1, 2024.

e. Assume instead that sage hill follows Aspe. using 1.a financial calculator or 2. excel function rate, calculate the rate of interest that sage hill should use to calculate its interest expense in future.

Reference no: EM132820566

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