On January 1, 2000, Rootless Cosmopolitans Inc. was indebted to the Eleventh National Bank of Hayward under a $20 million, 10% unsecured note. The note was signed January 1, 1994 and was due December 31, 2003. Annual interest was last paid on December 31, 1998. Rootless Cosmopolitans was experiencing severe financial difficulties and negotiated a restructuring of the terms of the debt agreement.
Required:
Prepare all journal entries by the Eleventh National Bank of Hayward to record the restructuring, and any remaining transactions in future years relating to the debt under each of the independent circumstances below:
1. The Eleventh National Bank of Hayward agreed to settle the debt in exchange for land having a fair market value of $16 million but carried on Rootless Cosmopolitans Inc.'s books at $13 million.
2. The Eleventh National Bank of Hayward agreed to (a) forgive the interest accrued from last year, (b) reduce the remaining four interest payments to $1 million dollar each, and (c) reduce the principal to $15 million.
3. The Eleventh National Bank of Hayward agreed to defer all payments (including accrued interest) until the maturity date and accept $27,775,000 at that time in settlement of the debt.