90.2K

Verified Solution

Link Copied!

At January 1, 2013, Rothschild Chair Company, Inc. was indebted to First Lincoln Bank under a $20 million, 10% unsecured

note. The note was signed January 1, 2010, and was due December 31, 2016. Annual interest was last paid on December 31,

2011. Rothschild Chair Company was experiencing severe financial difficulties and negotiated a restructuring of the terms of

the debt agreement.

Prepare all journal entries by Rothschild Chair Company, Inc. and First Lincoln Bank to record the restructuring and any remaining

transactions relating to the debt, including the final payoff, under each of the independent circumstances below:

(a) First Lincoln Bank agreed to settle the debt in exchange for land having a fair value of $16 million but carried on Rothschild

Chair Companys books at $13 million.

(b) First Lincoln Bank agreed to (a) forgive the interest accrued from last year, (b) reduce the remaining four interest payments to

$1 million each, and (c) reduce the principal to $15 million. Assume that the new effective interest rate under this scenario

would be 6%.

(c) First Lincoln Bank agreed to defer all payments (including accrued interest) until the maturity date and accept $27,775,000 at

that time in settlement of the debt. Assume that the new effective interest rate under this scenario would be 6%.

Answer & Explanation Solved by verified expert

See Answer