At January 1, 2016, Rothschild Chair Company, Inc., was indebted to First Lincoln Bank under a $35 million, 12% unsecured note. The note was signed January 1, 2013, and was due December 31, 2019.
Annual interest was last paid on December 31, 2014. Rothschild Chair Company was experiencing severe financial difficulties and negotiated a restructuring of the terms of the debt agreement. ( FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
Required:
Prepare all journal entries by Rothschild Chair Company, Inc., to record the restructuring and any remaining transactions relating to the debt under each of the independent circumstances below:
1. First Lincoln Bank agreed to settle the debt in exchange for land having a fair value of $31 million but carried on Rothschild Chair Company's books at $26.5 million. (Enter your answer in millions. If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to 1 decimal places.)
Record any necessary adjustment to land prior to recording the exchange for debt. Record the settlement of debt in exchange for land.
2. First Lincoln Bank agreed to (a) forgive the interest accrued from last year, (b) reduce the remaining four interest payments to $1 million each, and (c) reduce the principal to $28.5 million. (Enter your answer in millions. If no entry is required for a transaction/event, select;No journal entry required" in the first account field.)
Record the forgiveness of interest accrued from last year.
Record the $1 million payment at the end of each year.
Record the payment at the bonds' maturity.
3. First Lincoln Bank agreed to defer all payments (including accrued interest) until the maturity date and accept $47,648,000 at that time in settlement of the debt. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)
Record any necessary entry on the date of the restructuring agreement. December 31,2016
Record interest at year-end. December 31,2016
Record interest at year-end. December 31,2017
Record interest at year-end. December 31,2018
Record interest at year-end. December 31,2019
Record payment of the debt. December 31, 2019