Corona Industries Purchased a Stamping Machine on January 2, 2011

question 107

Multiple Choice

Corona Industries purchased a stamping machine on January 2, 2011, for $100,000. It paid $20,000 down and financed the balance over 5 years at State Bank. Terms of the loan were 10% interest payable on December 31 each year with a required $16,000 principal payment. 2014 proves to be a difficult year and on December 1, Corona negotiates a debt restructuring with State Bank. The settlement calls for cash payment of accrued interest plus $4,000 on December 1 and the transfer of 200 acres of land held by Corona that cost $15,000. The land has a current market value of $22,000.
-What is the amount of the restructuring gain or loss to Corona?

• A)$6,000 loss
• B)$6,000 gain
• C)$8,933 loss
• D)$13,000 gain

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Definitions:

Stock Investments

The purchase of shares in a company with the expectation of generating income or capital gains.

Insignificant Influence

Refers to a situation in which an investor does not have enough stake or power in an investee company to affect its decisions or policies.

Equity Method Investments

An accounting technique used to record investments in which the investor holds significant influence over the investee, usually recognized when owning 20-50% of the voting stock.

Cash Dividends

Earnings distributed to shareholders in the form of cash, reflecting a company's profitability and its decision to return a portion of profits back to investors.