Note the following supplemental data:
· On January 1, 2013, ABC Company purchased a 10% bond having a maturity value of $600,000, for $647,912.52. The bond provides the bondholder with an 8% yield. The bond is dated January 1, 2013 and matures January 1, 2018, with interest receivable December 31 of each year. The company uses the effective-interest method to allocate unamortized discounts and premiums.
· On January 1, 2013, ABC Company signed a 6-year, noncancelable lease for a truck. The terms of the lease called for ABC Company to make annual payments of $10,000 at the beginning of each year, starting January 1, 2013. The truck has an estimated useful life of seven years and zero residual value. The truck ownership reverts to the lessor at the end of the lease term. ABC Company uses the straight-line method of depreciation for all of its assets. ABC Company's incremental borrowing rate is 9%, and the lessor's implicit rate is unknown.
· ABC Company is having financial difficulty and has requested the bank restructure its $4 million note outstanding. The current note has 5 remaining years and pays an interest rate of 10%. The current market rate for a loan of this nature is 12%. ABC's note was issued at face value. The bank has agreed to accept land in exchange for relinquishing its claim on this note. The land has a book value of $2.95 million and a fair value of $3.5 million. (Note. Do not include the restructure date in your updated statements.)
Prepare bond and lease amortization schedules, including appropriate bond and lease journal entries.
Create journal entries for the book debt restructure.