Accounting On December 31, 2020, the Thomas Company is in default on its 10% bank loan, which is currently due. The company owes $1,000,000 on the loan and $50,000 in back interest. The bank has agreed to reduce the loan principal by $200,000, forgive the $50,000 of past interest, extend the maturity date by 4 years, and reduce the interest rate to 6%. Interest payments are due each December 31. 1. Prepare the journal entry by Thomas Company to record the loan restructuring. Original amount owed $1,000,000 Interest $25 2. Prepare the journal entry by Thomas to record the first loan payment on December 31, 2021.
Accounting On December 31, 2020, the Thomas Company is in default on its 10% bank loan, which is currently due. The company owes $1,000,000 on the loan and $50,000 in back interest. The bank has agreed to reduce the loan principal by $200,000, forgive the $50,000 of past interest, extend the maturity date by 4 years, and reduce the interest rate to 6%. Interest payments are due each December 31. 1. Prepare the journal entry by Thomas Company to record the loan restructuring. Original amount owed $1,000,000 Interest $25 2. Prepare the journal entry by Thomas to record the first loan payment on December 31, 2021.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Accounting On December 31, 2020, the Thomas Company is in default on its 10% bank loan, which is currently due. The company owes $1,000,000 on the loan and $50,000 in back interest. The bank has agreed to reduce the loan principal by $200,000, forgive the $50,000 of past interest, extend the maturity date by 4 years, and reduce the interest rate to 6%. Interest payments are due each December 31.
1. Prepare the journal entry by Thomas Company to record the loan restructuring. Original amount owed $1,000,000 Interest $25
2. Prepare the journal entry by Thomas to record the first loan payment on December 31, 2021.
Expert Solution
Step 1
Carrying Value prior to restructuring = Loan Value + Interest Payable
= 1,000,000 +50,000 =$1,050,000
Restructured Loan Value = 10,00,000 - 200,000 = $800000
Payment of Interest = 800,000 x 6% = $48000
Step by step
Solved in 3 steps
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education