Discuss the interest rate assumed by the debtor and creditor

Reference no: EM13131759

On December 31st, 2003, the Merchant Bank enters into a debt restructuring agreement with Shrek Company, which is now experiencing financial trouble. The bank agrees to restructure a 10%, issued at par, $1,000,000 note receivable by the following modifications: 1) Reducing the principal obligation to $500,000 2) Extending the maturity date to 12/31/06 3) Reducing the interest rate to 8%. Prepare all journal entries from 12-31-03 to 12-31-06 for both parties (debtor and creditor), and discuss the interest rate assumed by the debtor and creditor after the restructuring. Show all your work.

Reference no: EM13131759

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