Reference no: EM132486196

Question - At January 1, year 3, Mars Industries, Inc., owed Second Public Bank $13 million under a 13% note due December 31, year 5. Interest was paid last on December 31, year 1. Mars was experiencing severe financial difficulties and asked Second Public Bank to modify the terms of the debt agreement. After negotiation Second Public Bank agreed to:

a. Forgive the interest accrued for the year just ended.

b. Reduce the remaining two years' interest payments to $1 million each and delay the first payment until December 31, year 4

c. Reduce the unpaid principal amount to $12 million.

Required - Prepare the journal entries by Mars Industries, Inc., necessitated by the restructuring of the debt at (1) January 1, year 3; (2) December 31, year 4; and (3) December 31, year 5.