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Barkley

Price: $2.50


*E14-21 (Term Modification without Gain—Debtor’s Entries) On December 31, 2012, the American Bank enters into a debt restructuring agreement with Barkley Company, which is now experiencing financial trouble. The bank agrees to restructure a 12% issued at par, $3,000,000 note
receivable by the following modifications:

1. Reducing the principal obligation from 3,000,000 to $2,400,000.00
2. Extending the maturity date from December 31, 2012, to January 1, 2016.
3. Reducing the interest rate from 12% to 10%

Instructions
(a) Will the gain recorded by Barkley be equal to the loss recorded by American Bank under the debt
restructuring?
(b) Can Barkley Company record a gain under the term modification mentioned above? Explain.
(c) Assuming that the interest rate Barkley should use to compute interest expense in future periods is
1.42760% , prepare the interest payment schedule of the note for Barkley Company after the debt
restructuring.
(d) Prepare the interest payment entry for Barkley Company on December 31, 2014.
(e) What entry should Barkley make on January 1, 2016?

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