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10 February, 05:18

At January 1, 2018, Brainard Industries, Inc., owed Second BancCorp $12 million under a 10% note due December 31, 2020. Interest was paid last on December 31, 2016. Brainard was experiencing severe financial difficulties and asked Second BancCorp to modify the terms of the debt agreement. After negotiation Second BancCorp agreed to:

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  1. 10 February, 08:23
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    Answer and Explanation:

    Brainard Industries, Inc Journal entries

    Dr Book value:

    ($12 million + 1.2 million) $13,200,000

    Cr Future payments:

    [ ($1 million x 2) + $11 million ]13,000,000

    Cr Gain to debtor$ 200,000

    1. January1, 2018

    Dr Interest payable (10%x$12,000,000) 1,200,000

    Cr Notes payable ($13 million - 12 million) * 1,000,000

    Cr Gain on troubled debt restructuring 200,000

    Balance in note account will be equal to total cash payments under new agreement

    2. December 31, 2019

    Dr Notes payable1,000,000

    Cr Cash (revised "interest" amount) 1,000,000

    Interest should not be recorded after restructuring. Therefore all subsequent cash payments will result in reductions of principal

    3. December 31, 2020

    Dr Notes payable1,000,000

    Cr Cash (revised "interest" amount) 1,000,000

    Dr Notes payable11,000,000

    Cr Cash (revised principal amount) 11,000,000
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