Daniel Perkins is the sole shareholder of Ivanhoe Inc., which is currently under protection of the...
Daniel Perkins is the sole shareholder of Ivanhoe Inc., which is
currently under protection of the U.S. bankruptcy court. As a
“debtor in possession,” he has negotiated the following revised
loan agreement with United Bank. Ivanhoe Inc.’s $626,000, 11%,
12-year note was refinanced with a $626,000, 5%, 12-year
note.
(a) What is the accounting nature of this
transaction?
Troubled debt restructuring
(b) Prepare the journal entry to record this
refinancing: (Round present value factor calculations
to 5 decimal places, e.g. 1.25124 and the final answers to 0
decimal places e.g. 58,971. If no entry is required, select "No
Entry" for the account titles and enter 0 for the amounts. Credit
account titles are automatically indented when amount is entered.
Do not indent manually.)
| (1) | On the books of Ivanhoe Inc. | |
| (2) |
On the books of United Bank. |
|
No. |
Account Titles and Explanation |
Debit |
Credit |
| 1. | |||
| 2. | |||
Homework Answers
(a) restructuring
(b)
| No | Account Titles and Explanation | Debit | Credit |
| 1 | No entry | ||
| 2 | Bad debt expense | 243877 | |
| Allowance for doubtful debts | 243877 |
Workings:
| Note O/s | 626000 | ||
| Less: | |||
| Present value of 626,000 | 626000* PVIF(11%,12th year) | [626,000*0.2858] | 178910.8 |
| Present value of interest payment | 626000*5%* PVAF [ 11%,12years] | [31300*6.4924] | 203212.12 |
| Loss on restructuring | 243877 |
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Daniel Perkins is the sole shareholder of Ivanhoe Inc., which is
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