Question

On December 31, 2020, St. Lawrence Inc. is in financial difficulty and cannot pay a 9%,...

On December 31, 2020, St. Lawrence Inc. is in financial difficulty and cannot pay a 9%, $ 500,000, par value note, due immediately, to Lender Corp. Lender agrees to extend the maturity date to December 31, 2022, and reduce the interest payment rate to 5%, and the principal amount due to $470,000. Both companies have a year end of December 31. Both companies use IFRS.

Required:

  1. Prepare the journal entries for both St. Lawrence and Lender to account for the event. Be sure to show calculations.
  2. Assume the same information, except that the principal amount due does NOT change, and remains at $500,000. Prepare the journal entry for St. Lawrence only.

Homework Answers

Answer #1
Date Accounts Name Debit Credit
Problem A
31/12/2020 9% notes Payable 500000
            5% notes payable 470000
                 Discount on notes payable 30000
in the books of lender Corp
5% notes receivable 470000
Discount on notes receivable 30000
   9% notes receivable 500000
Problem B
9% notes Payable 500000
            5% notes payable 500000

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