Excel Corporation is experiencing financial difficulty and has met with their creditor (BMO) to explore their options related to a $1.5 million, 6% note payable that is outstanding. The note was issued on September 1, 2020 when the market rate of interest was 6%. There are two years remaining on the note and the current market rate of interest is 8%. Excel and BMO prepare financial statements in accordance with IFRS. For each of the following independent situations prepare the journal entry that both Excel and BMO would on their books. a. BMO agrees to accept Excel common shares valued at $1,000,000 as settlement of the debt. b. BMO agrees to accept land as settlement of the debt. The land is on the books of Excel for $500,000 and has a market value of $1,250,000. c. BMO agrees to modify the terms so that Excel is not paying any interest on the note for the remaining two years.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Excel Corporation is experiencing financial
difficulty and has met with their creditor
(BMO) to explore their options related to a
$1.5 million, 6% note payable that is
outstanding. The note was issued on
September 1, 2020 when the market rate of
interest was 6%. There are two years
remaining on the note and the current market
rate of interest is 8%. Excel and BMO prepare
financial statements in accordance with IFRS.
For each of the following independent
situations prepare the journal entry that both
Excel and BMO would on their books.
a. BMO agrees to accept Excel common
shares valued at $1,000,000 as settlement of
the debt.
b. BMO agrees to accept land as settlement
of the debt. The land is on the books of Excel
for $500,000 and has a market value of
$1,250,000.
c. BMO agrees to modify the terms so that
Excel is not paying any interest on the note
for the remaining two years.
d. BMO agrees to reduce the principal
balance to $1,000,000 and requires interest
only payments for the next two years at a rate
of 9%.
Transcribed Image Text:Excel Corporation is experiencing financial difficulty and has met with their creditor (BMO) to explore their options related to a $1.5 million, 6% note payable that is outstanding. The note was issued on September 1, 2020 when the market rate of interest was 6%. There are two years remaining on the note and the current market rate of interest is 8%. Excel and BMO prepare financial statements in accordance with IFRS. For each of the following independent situations prepare the journal entry that both Excel and BMO would on their books. a. BMO agrees to accept Excel common shares valued at $1,000,000 as settlement of the debt. b. BMO agrees to accept land as settlement of the debt. The land is on the books of Excel for $500,000 and has a market value of $1,250,000. c. BMO agrees to modify the terms so that Excel is not paying any interest on the note for the remaining two years. d. BMO agrees to reduce the principal balance to $1,000,000 and requires interest only payments for the next two years at a rate of 9%.
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