Daniel Perkins is the sole shareholder of Sheffield 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. Sheffield Inc.’s $674,000, 11%, 10-year note was refinanced with a $674,000, 5%, 10-year note. (a) What is the accounting nature of this transaction? Choices: Troubled debt restructuring or Extinguishment of debt? (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.) (1) On the books of Sheffield Inc. (2) On the books of United Bank.
Daniel Perkins is the sole shareholder of Sheffield 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. Sheffield Inc.’s $674,000, 11%, 10-year note was refinanced with a $674,000, 5%, 10-year note. (a) What is the accounting nature of this transaction? Choices: Troubled debt restructuring or Extinguishment of debt? (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.) (1) On the books of Sheffield Inc. (2) On the books of United Bank.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable
Section: Chapter Questions
Problem 29E
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Daniel Perkins is the sole shareholder of Sheffield 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. Sheffield Inc.’s $674,000, 11%, 10-year note was refinanced with a $674,000, 5%, 10-year note.
(a) What is the accounting nature of this transaction? Choices: Troubled debt restructuring or Extinguishment of debt?
(b) Prepare the
| (1) | On the books of Sheffield Inc. | |
| (2) | On the books of United Bank. |
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Transcribed Image Text:Larkspur Co. owes $202,500 to Cullumber Inc. The debt is a 10-year, 11% note. Because Larkspur Co. is in financial trouble,
Cullumber Inc. agrees to accept some land and cancel the entire debt. The property has a book value of $92,800 and a fair value of
$146,600.
(a)
Prepare the journal entry on Larkspur's books for debt restructure.
(b)
Prepare the journal entry on Cullumber's books for debt restructure.
(If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented
when amount is entered. Do not indent manually.)
No. Account Titles and Explanation
Debit
Credit
(a) Larkspur Co.'s entry:
(b)
Cullumber Inc. entry:
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