Suppose that on January 1, Year 1 a debtor owed a creditor a $6,573 (face) non-interest-bearing note due on this date. The interest rate implied on this note is 8%. The debtor was unable to pay the total amount and the parties agreed to a restructure in which the debtor would make the following restructured payments: (1) restructured face value of $5,000 due December 31, Year 6, (2) annual interest payments at 10% of the new face value, beginning December 31, Year 1. What would be the debtor’s journal entries on a. January 1, Year 1? b. December 31, Year 1? c. December 31, Year 2? d. December 31, Year 6?
Suppose that on January 1, Year 1 a debtor owed a creditor a $6,573 (face) non-interest-bearing note due on this date. The interest rate implied on this note is 8%. The debtor was unable to pay the total amount and the parties agreed to a restructure in which the debtor would make the following restructured payments: (1) restructured face value of $5,000 due December 31, Year 6, (2) annual interest payments at 10% of the new face value, beginning December 31, Year 1. What would be the debtor’s journal entries on a. January 1, Year 1? b. December 31, Year 1? c. December 31, Year 2? d. December 31, Year 6?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Suppose that on January 1, Year 1 a debtor owed a creditor a $6,573 (face) non-interest-bearing note due on this date. The interest rate implied on this note is 8%. The debtor was unable to pay the total amount and the parties agreed to a restructure in which the debtor would make the following restructured payments: (1) restructured face value of $5,000 due December 31, Year 6, (2) annual interest payments at 10% of the new face value, beginning December 31, Year 1.
What would be the debtor’s
a. January 1, Year 1?
b. December 31, Year 1?
c. December 31, Year 2?
d. December 31, Year 6?
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