Problem 21-7 (LO 1) Financial impact of extinguishments and restructurings. Each of the following is an independent fact situation involving an extinguishment or restructuring of debt.
Debt A—On January 1, 2015, the company borrowed $3,000,000 after incurring $100,000 of related debt issuance costs. The note had a term of three years and called for quarterly interest only payments based on a stated interest rate of 6%. The effective interest method was used to account for the debt. Although the debtor is not experiencing financial difficulties, after making three quarterly payments, the debt was modified as follows: the due date of the note was extended to December 31, 2017, another $400,000 was advanced on the loan (increasing the face value to $3,400,000), and the stated interest rate was changed to 6.4%. The new debt is assumed to have a fair value of $3,300,000.
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