Part 2: Free Response – Troubled-Debt Restructuring (20 Poin…

Part 2: Free Response – Troubled-Debt Restructuring (20 Points) On December 31, 2023, E. Money Bank (“the Bank”) enters into a debt restructuring agreement with Ronnie Spector Company (“the Company”), which is experiencing financial difficulties. The Company currently owes $7,000,000 plus $90,000 of accrued interest. The note was originally issued at par with a stated rate of 8% with interest payable annually on December 31. The present market rate for a loan of this nature is 12%. The Bank agrees to restructure the note with the following modifications: Reducing the principal by $400,000 and forgiving all of the accrued interest. Extending the maturity date from December 31, 2023 to December 31, 2025. Reducing the stated interest rate from 8% to 6%, payable annually on December 31. Required: Record any required journal entries on December 31, 2023; December 31, 2024; and December 31, 2025 for BOTH Ronnie Spector Company and E. Money Bank. Record your final entries in the provided spaces beginning on the next page. If no journal entry is required, write “no journal entry is required” – DO NOT LEAVE BLANK. If required, round percentages to the second decimal (e.g. 5.75%) and final answers to the nearest whole dollar.

(b) (4 Points) For each of the following independent situati…

(b) (4 Points) For each of the following independent situations, prepare the journal entry that the Company would have instead recorded on December 31, 2024 (related only to the fair value of the investment) if the investment had originally been classified as follows rather than as available-for-sale. If no journal entry is required in any of the situations, write “no journal entry is required” – DO NOT LEAVE BLANK.

REO Speedwagon Corporation chooses to use the fair value opt…

REO Speedwagon Corporation chooses to use the fair value option to value bonds that it issued at face value earlier in the year. At the end of the year, the Company recorded an unrealized holding gain through other comprehensive income. Using this limited fact pattern, what can be concluded about how the fair value of the debt and the Company’s credit rating changed over the year?