Wallace, Inc., loaned Grommit Company $40,000 on January 1, 2007. The 8 percent, 7-year, simple-interest loan note called for annual interest payments each December 31. The note is due December 31, 2023. Grommit made the required interest payments through December 31, 2010. In early January 2011, Grommit began to default on some of its other debts and asked Wallace to renegotiate the original debt agreement, including an extension of the maturity date. Wallace refused but could see that the remaining scheduled payments on the loan were in jeopardy.
Wallace reevaluated the Grommit note and estimated that the remaining interest payments would be only three-fourths of the original amount (based on the original principal amount), and that only one-half of the principal amount would be collected.
Wallace uses the interest method to account for interest after recording a note impairment.
Required:

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The Answer of Wallace, Inc., loaned Grommit Company $40,000 on January 1, 2007. The 8 percent, 7-year, simple-interest loan note called for annual interest payments each December 31. The note is due December 31, 2023. Grommit made the required interest payments through December 31, 2010. In early January 2011, Grommit began to default on some of its other debts and asked Wallace to renegotiate the original debt agreement, including an extension of the maturity date. Wallace refused but could see that the remaining scheduled payments on the loan were in jeopardy.
Wallace reevaluated the Grommit note and estimated that the remaining interest payments would be only three-fourths of the original amount (based on the original principal amount), and that only one-half of the principal amount would be collected.
Wallace uses the interest method to account for interest after recording a note impairment.
Required: