Question

During 2018 Belair Company was encountering financial difficulties and seemed likely to default on a $600,000, 10%, four-year note dated January 1, 2016, payable to Second Bank. Interest was last paid on December 31, 2017. On December 31, 2018, Second Bank accepted $500,000 in settlement of the note. Ignoring income taxes, what amount should Belair report as a gain from the debt restructuring in its 2018 income statement?

Answer 1

Answer:

gain from the debt restructuring = $160,000

Explanation:

given data

principal = $600,000

rate = 10%

settlement = $500,000

to find out

gain from the debt restructuring in  income statement

solution

we get here owed a total that is

owed a total = Principal + Unpaid interest    ...............1

put here value

owed a total = $600,000 + $60,000

owed a total = $660,000

and

gain from the debt restructuring is here as

gain from the debt restructuring = owed a total - settled   .......2

gain from the debt restructuring = $660,000 - $500,000

gain from the debt restructuring = $160,000