question archive At January 1, 2020, Student Ltd owes Tuition Corp for a $120,000 note payable
At January 1, 2020, Student Ltd owes Tuition Corp for a $120,000 note payable
Subject:FinancePrice: Bought3
At January 1, 2020, Student Ltd owes Tuition Corp for a $120,000 note payable. The note bears interest at 10%, payable annually, and the principal balance is due December 31, 2021. The market rate for comparable loans was, and continues to be, 10%. Interest has been paid to December 31, 2019. Student is now in financial difficulty and may not be able to repay Tuition. To promote payment, Tuition agrees to restructure the note, reducing the interest to 7% payable annually, reducing the principal balance to $100,000 and extending the term to December 31, 2024.
a) Assume the restructuring is significant. Prepare all required journal entries on Student's books for the note in 2020, including the December 31 interest payment.
b) Assume same restructuring as above except that the principal amount only dropped to $115,000. At this level, the restructuring of the note is not a significant change. Prepare all required journal entries on Student's books for the note in 2020.
