At January 1, 2018, Brainard Industries, Inc., owed Second BancCorp $20 million

Question

At January 1, 2018, Brainard Industries, Inc., owed Second BancCorp $20 million under a 10% note due December 31, 2020 Interest was paid last on December 31, 2016. Brainard was experiencing severe financial difficulties and asked Second BancCorp to modify the terms of the debt agreement. After negotiation Second BancCorp agreed to a. Forgive the interest accrued for the year just ended b. Reduce the remaining two years' interest payments to $1 million each and delay the first payment until December 31, 2019 C. Reduce the unpaid principal amount to $19 million. Required Prepare the journal entries by Brainard Industries, Inc., necessitated by the restructuring of the debt at (1) January 1, 2018; (2) December 31, 2019; and (3) December 31, 2020. (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Explanation / Answer

To Bank A/c

Date Particular Dr. Amount Cr. Amount 1/1/2018 10% Deb. A/c Dr. $ 1000000 To Statement of Profit & Loss A/c $ 1000000 Being unpaid principal amount reduced to $ 19 million, so $ 1 million is waived. 1/1/2018 10% Deb. A/c Dr. $ 2000000 To Statement of Profit & Loss A/c $ 2000000 Being interest accrued for the year just ended is forgive, so $ 2 million is waived. 12/31/2019 Deb. Interest A/c Dr. $ 1900000 To 10% Deb. A/c $ 1900000 Being interest accrued for the year ended December, 2019. 12/31/2019 10% Deb. A/c Dr. $ 900000 To Statement of Profit & Loss A/c $ 900000 Being interest amount is reduced to $ 1 million, so $ 900000 is waived. 12/31/2019 Deb. Interest A/c Dr. $ 1000000

To Bank A/c

$ 1000000 Being interest paid for the year December, 2019 12/31/2020 Deb. Interest A/c Dr. $ 1900000 To 10% Deb. A/c $ 1900000 Being interest accrued for the year ended December, 2020. 12/31/2020 10% Deb. A/c Dr. $ 900000 To Statement of Profit & Loss A/c $ 900000 Being interest amount is reduced to $ 1 million, so $ 900000 is waived. 12/31/2020 Deb. Interest A/c Dr. $ 1000000 To Bank A/c $ 1000000 Being interest paid for the year December, 2020.

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