Equipment with a Fair Value of $65,000 and a Cost

question 33

Short Answer

Equipment with a fair value of $65,000 and a cost basis of $60,000 is transferred to a creditor in partial settlement of a debt of $150,000 plus accrued interest of $7,500. The balance of the debt will be satisfied by 3 equal payments of $30,000 over the next three years. Which of the following journal entries best records the restructure? a.
$\begin{array}{lrr}\text { Loan Payable } & 150,000 & \\\text { Interest Payable } & 7,500 & \\\text { Equipment } & & 60,000 \\\text { Restructured Debt } \quad\quad\quad\quad\quad&& 90,000 \\\text { Gain on Restructure } && 7,500\end{array}$
b.
$\begin{array}{lrr}\text { Loan Payable } & 150,000 & \\\text { Loss on Restructure } & 5,000 & \\\text { Equipment } & & 60,000 \\\text { Gain on Transfer of Equipment } && 5,000 \\\text { Restructured Debt } && 90,000\end{array}$
c.
$\begin{array}{lcc}\text { Loan Payable } & 150,000 & \\\text { Interest Payable } & 7,500 & \\\text { Equipment } & & 60,000 \\\text { Gain on Transfer of Equipment } && 5,000 \\\text { Restructured Debt } && 90,000 \\\text { Gain on Restructure } && 2,500\end{array}$
d.
$\begin{array}{lrr}\text { Loan Payable } & 150,000 & \\\text { Interest Payable } & 7,500 & \\\text { Equipment } & & 65,000 \\\text { Restructured Debt } && 90,000 \\\text { Gain on Restructure }\quad\quad\quad\quad\quad && 2,500\end{array}$

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