Accounting for Troubled Debt Restructurings

Essay

Accounting for Troubled Debt Restructurings.On December 31, 2014, Federal Bank enters into a debt restructuring agreement with Carson Company which is experiencing financial difficulties. The bank restructures a $5,000,000 note receivable by:1. Reducing the principal obligation from $5,000,000 to $4,000,000.2. Extending the maturity date from 12/31/14 to 12/31/17, and"3. Reducing the interest rate from 12% to 6%.Interest has been paid up to date as of 12/31/14.
InstructionsDiscuss the nature of this transaction, indicating whether any gain or loss is recognized by either party and preparing any 12/31/14 journal entries that may be required by the debtor (Carson)."