Halvor Corporation is having financial dif- ficulty and therefore has asked Frontenac National Bank

| February 14, 2018

(RestructureofNoteunderDifferentCircumstances)Halvor Corporation is having financial dif- ficulty and therefore has asked Frontenac National Bank to restructure its $5 million note outstanding. The present note has 3 years remaining and pays a current rate of interest of 10%. The present market rate for a loan of this nature is 12%. The note was issued at its face value.InstructionsPresentedbelowandonthenextpagearefourindependentsituations.PreparethejournalentrythatHalvor and Frontenac National Bank would make for each of theserestructurings.(a)Frontenac National Bank agrees to take an equity interest in Halvor by accepting common stock valued at $3,700,000 in exchange for relinquishing its claim on this note. The common stock has a par value of $1,700,000.(b)FrontenacNationalBankagreestoacceptlandinexchangeforrelinquishingitsclaimonthisnote.The land has a book value of $3,250,000 and a fair value of $4,000,000.(c)FrontenacNationalBankagreestomodifythetermsofthenote,indicatingthatHalvordoesnothave to pay any interest on the note over the 3-year period.(d)Frontenac National Bank agrees to reduce the principal balance due to $4,166,667 and require inter- est only in the second and third year at a rate of 10%.

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