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The company is experiencing cash flow problems agreeing with lenders to renegotiate and expects them to agree with some favorable or flexible conditions so that the company can avoid bankruptcy. This process is known as debt restructuring.

No, by the debt restructuring arrangement, Barkley's gain does not equal American Bank's loss. (In the four following activities, you'll discover why this occurs.) The FASB was concerned that expanding the scope of its announcement would cause a delay in the release of GAAP for the creditor. Therefore, GAAP did not deal with debtor accounting about this "accounting asymmetry" treatment.

The future cash flows following the restructuring are more than the whole pre-restructuring carrying value of the note (principal). Hence there is no gain under the new conditions.

Calculation of total cash flow after restructuring

Working notes:

Calculation of Cash paid on 12/31/18

$\begin{array}{rcl}\mathbf{Cash}\mathbf{}\mathbf{Paid}& \mathbf{=}& \mathbf{Principal}\mathbf{}\mathbf{Obligation}\mathbf{脳}\mathbf{Interest}\mathbf{}\mathbf{rate}\\ & \mathbf{=}& \mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{400}\mathbf{,}\mathbf{000}\mathbf{脳}\mathbf{10}\mathbf{\%}\\ & \mathbf{=}& \mathbf{\$}\mathbf{240}\mathbf{,}\mathbf{000}\end{array}$

Calculation of interest expense on 12/31/18

$\begin{array}{rcl}\mathbf{Interest}\mathbf{}\mathbf{Expense}& \mathbf{=}& \mathbf{Principal}\mathbf{}\mathbf{Obligation}\mathbf{脳}\mathbf{Interest}\mathbf{}\mathbf{rate}\\ & \mathbf{=}& \mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{000}\mathbf{,}\mathbf{000}\mathbf{脳}\mathbf{1}\mathbf{.}\mathbf{4276}\mathbf{\%}\\ & \mathbf{=}& \mathbf{\$}\mathbf{42}\mathbf{,}\mathbf{828}\end{array}$

Calculation of Reduction of carrying amount on 12/31/18

$\begin{array}{rcl}\mathbf{Reduction}\mathbf{}\mathbf{of}\mathbf{}\mathbf{carrying}\mathbf{}\mathbf{amout}& \mathbf{=}& \mathbf{Cash}\mathbf{}\mathbf{paid}\mathbf{-}\mathbf{Interest}\mathbf{}\mathbf{expense}\\ & \mathbf{=}& \mathbf{\$}\mathbf{240}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{42}\mathbf{,}\mathbf{828}\\ & \mathbf{=}& \mathbf{\$}\mathbf{197}\mathbf{,}\mathbf{712}\end{array}$

Interest payment entry for Barkley Company is:

The payment entry at maturity is: