(Solution) - Vargo Limited owes 270 000 to First Trust Inc on a -(2025 Original AI-Free Solution)

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Academic Level: Undergrad. (yrs 3-4)

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Vargo Limited owes $270,000 to First Trust Inc. on a 10-year, 12% note due on December 31, 2014. The note was issued at par. Because Vargo is in financial trouble, First Trust Inc. agrees to extend the maturity date to December 31, 2016, reduce the principal to $220,000, and reduce the interest rate to 5%, payable annually on December 31. The market rate is currently 5%. Both Vargo and First Trust prepare financial statements in accordance with IFRS.
Instructions
(a) Prepare the journal entry on Vargo's books on December 31, 2014, 2015, and 2016.
(b) Prepare the journal entry on First Trust's books on December 31, 2014, 2015, and 2016.