Question

Swifty Corp. owes $269,000 to Nash Trust. The debt is a 10-year, 12% note due December 31, 2020. Because Swifty Corp. is in financial trouble, Nash Trust agrees to extend the maturity date to December 31, 2022, reduce the principal to $215,000, and reduce the interest rate to 7%, payable annually on December 31.

(a)		Prepare the journal entries on Swifty’s books on December 31, 2020, 2021, 2022.
(b)		Prepare the journal entries on Nash Trust’s books on December 31, 2020, 2021, 2022.

(Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer 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.)

Answer 1

Given information follows below:

Swifty Corp. owes amount = $269,000  

Debt time period =  10-year

Due percentage = 12%

On December 31, 2022, reduce the principal to = $215,000,

Reduce the interest rate to percentage = 7%,

a) Preparing the journal entries on Swifty’s books on December 31, 2020, 2021, 2022.

Answer-(a):
Date	Account Title	Debit	Credit
December31, 2020	Notes payable Swifty Corp. owes amount - reduce the principal to ($269,000 - 215,000)	$54,000
	Gain on reconstruction Swifty Corp. owes amount - reduce the principal to ($269,000 - 215,000)		$54,000
December.31, 2021	Interest expense reduce the principal x interest rate to percentage ($215,000*7%)	$15,050
	Cash		$15,050
December.31, 2022	Interest expense reduce the principal x interest rate to percentage($215,000*7%)	$15,050
	5% Notes payable	$215,000
	Cash		$230,050
Answer-(b):
Date	Account Title	Debit	Credit
December.31, 2020	Loss on reconstruction Swifty Corp. owes amount - reduce the principal to ($269,000 - 215,000)	$54,000
	Notes receivable Swifty Corp. owes amount - reduce the principal to		$54,000
December.31, 2021	Cash reduce the principal x interest rate to percentage ($215,000*7%)	$15,050
	Interest revenue reduce the principal x interest rate to percentage ($215,000*7%)		$15,050
December .31, 2022	Cash	$230,050
	Notes receivable		$215,000
	Interest revenue		$15,050

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