On December 31, 2010, Federal Bank enters into a debt restructuring agreement with Carson Company which is experiencing financial difficulties. The bank restructures a $3,000,000 note receivable by:
1. Reducing the principal obligation from $3,000,000 to $2,400,000.
2. Extending the maturity date from 12/31/10 to 12/31/13, and
3. Reducing the interest rate from 12% to 6%.
Interest has been paid up to date as of 12/31/10
Instructions
Discuss the nature of this transaction, indicating whether any gain or loss is recognized by either party and preparing any 12/31/10 journal entries that may be required by the debtor (Carson).
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