Question

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.

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.

Answer 1

Date	Accounts Name	Debit	Credit
	Problem 1
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