Mc Graw Hill At January 1, year 3, Mars Industries, Inc., owed Second Public Ban
ID: 2329497 • Letter: M
Question
Mc Graw Hill 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. Afterneg titteinterestaccruedfarthinyeestpaymentstoslmilli neachanddelaythefinstpayment Second Public Bank agreed to: Forgive the interest accrued for the year just ended. b. a. 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 5Explanation / Answer
Analysis: Carrying amount $13 million + $1.69 million = $14.69 million Future payments ($1 million × 2) + $12 million = 14 million Gain $ 0.69 million ($ in millions) Date Account Titles & Explanation Debit Credit Jan 1, Year 3 Accrued interest payable (13% × $13 million) 1.69 Note payable ($14 million – 13 million) 1 Gain on debt restructuring 0.69 Dec 31, Year 4 Note payable 1 Cash (revised “interest” amount) 1 Dec 31, Year 5 Note payable 13 Cash (revised principal + interest amount) 13 Note: I have tried my best for correct solution and work , still you need any further help, please ask in comment and don’t forget to rate positively.