Paying Restructered Debt

Paying Restructered Debt - 150,000 350,000 At the end of...

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Paying Restructured Debt ABC Company purchased a machine for $500,000, financing the purchase with a 10-year $500,000 installment note with annual payments of $67,934. The effective interest rate is 6% compounded annually. First payment due one year after the purchase. ABC assumes that the machine has an expected life of 10 years with a zero residual value. ABC created the following liability table when the purchase was made. Change in Interest Cash Carrying Carrying Date Expense Flow Amount Amount Purchase 500,000 End Y1 30,000 67,934 (37,934) 462,066 End Y2 27,724 67,934 (40,210) 421,856 End Y3 25,311 67,934 (42,623) 379,233 ABC also created the following depreciation table for the machine at purchase: Depreciation Accumulated Book Date Cost Expense Depreciation Value End Y1 500,000 50,000 50,000 450,000 End Y2 500,000 50,000 100,000 400,000 End Y3 500,000 50,000
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Unformatted text preview: 150,000 350,000 At the end of years 2 and 3 ABC is unable to pay the interest and principal. The lender agrees to take the machine which has a fair value of $290,000 in exchange for the note and accrued interest. In the table below, write the journal entry at the end of year 3 that ABC would make to record the exchange of the machine for the note. 1 Notes payable 462,066 Interest payable 53,035 Machine 500,000 Accumulated depreciation, machine 150,000 Loss on disposal machine 60,000 Gain on debt restructuring 225,101 In the table below, write the journal entry at the end of year 3 that the lender would make to record the exchange of the machine for the note. Machine 290,000 Allowance for bad debts 225,101 Note receivable 462,066 Interest receivable 53,035 2...
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This note was uploaded on 01/31/2011 for the course MGMT 351 taught by Professor Staff during the Spring '08 term at Purdue.

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Paying Restructered Debt - 150,000 350,000 At the end of...

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