E14-21 (Term Modification without Gain?Debtor's Entries) On December 31, 2010, the American Bank enters into a debt restructuring agreement with Barkley Company, which is now experiencing financial trouble. The bank agrees to restructure a 12%, issued at par, $3,000,000 note receivable by the following modifications;1. Reducing the principal obligation from $3,000,000 to $2,400,000.;2. Extending the maturity date from December 31, 2010, to January 1, 2014.;3. Reducing the interest rate from 12% to 10%.;Barkley pays interest at the end of each year. On January 1, 2014, Barkley Company pays $2,400,000 in cash to Firstar Bank.;Instructions;(a) Will the gain recorded by Barkley be equal to the loss recorded by American Bank under the debt restructuring?;(b) Can Barkley Company record a gain under the term modification mentioned above? Explain.;(c) Assuming that the interest rate Barkley should use to compute interest expense in future periods is 1.4276%, prepare the interest payment schedule of the note for Barkley Company after the debt restructuring.;(d) Prepare the interest payment entry for Barkley Company on December 31, 2012.;(e) What entry should Barkley make on January 1, 2014?
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