Debtor/creditor entries for continuation of troubled debt

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(Debtor/Creditor Entries for Continuation of Troubled Debt) Daniel Perkins is the sole shareholder of Perkins Inc., which is currently under protection of the U.S. bankruptcy court. As a "debtor in possession," he has negotiated the following revised loan agreement with United Bank. Perkins Inc.'s $600,000, 12%, 10-year note was refinanced with a $600,000, 5%, 10-year note.

Instructions

(a) What is the accounting nature of this transaction?

(b) Prepare the journal entry to record this refinancing: (1) On the books of Perkins Inc. (2) On the books of United Bank.

(c) Discuss whether generally accepted accounting principles provide the proper information useful to managers and investors in this situation.

Reference no: EM131050709

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