QUELL Co. owes PUT DOWN Bank F4,000,000 plus accrued interest of P360,000. The unamortized discount on the loan is P80,000. The debt is a 10-year, 12% loan. During 20x1, QUELL's business deteriorated due to loss of demand for its services. On December 31, 20x1, PUT DOWN Bank agrees to accept old equipment and cancel the entire debt. The equipment has a cost of P12,000,000, accumulated depreciation of P8,800,000, and fair value of P3,600,000. How much is the gain (loss) on the extinguishment of the debt? a. 1,800,000 b. 760,000 c. (1,800,000) d. 1,080,000

QUELL Co. owes PUT DOWN Bank F4,000,000 plus accrued interest of P360,000. The unamortized discount on the loan is P80,000. The debt is a 10-year, 12% loan. During 20x1, QUELL's business deteriorated due to loss of demand for its services. On December 31, 20x1, PUT DOWN Bank agrees to accept old equipment and cancel the entire debt. The equipment has a cost of P12,000,000, accumulated depreciation of P8,800,000, and fair value of P3,600,000. How much is the gain (loss) on the extinguishment of the debt? a. 1,800,000 b. 760,000 c. (1,800,000) d. 1,080,000

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter4: Income Exclusions

Section: Chapter Questions

Problem 61P

See similar textbooks

Similar questions

On January 1, Kilgore Inc. accepts a 20,000 non-interest-bearing, 5-year note from Dieland Company for equipment. Neither the fair value of the note nor the equipment is determinable. Kilgore had originally purchased the equipment for 18,000, and the equipment has a book value of 14,000 on January 1. Kilgore knows Dielands incremental borrowing rate of 9%. Prepare the journal entry for Kilgore to record the sale of the equipment on January 1.
Kwell Co. owes Kuto Bank P4,000,000 plus accrued interest of P360,000. The unamortized discounton the loan is P80,000. The debt is a 10-year, 12% loan. During 20x1, Kwell’s business deteriorateddue to loss of demand for its services. On December 31, 20x1, Kuto Bank agrees to accept oldequipment and cancel the entire debt. The equipment has a cost of P12,000,000, accumulateddepreciation of P8,800,000 and fair value of P3,600,000. How much is the gain (loss) on theextinguishment of the debt?
Pharoah Inc. owes Waterway Bank $166,000 plus $16,300 of accrued interest. The debt is a 10-year, 10% note. During 2023, Pharoah's business declined due to a slowing regional economy. On December 31, 2023, the bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $302,000, accumulated depreciation of $185,000, and a fair value of $146,000. The bank plans to dispose of the machine at a cost of $6,000. Both Pharoah and Waterway Bank prepare financial statements in accordance with IFRS 9. (a) Prepare the journal entries for Pharpah and Waterway Bank to record this debt settlement. Assume Waterway Bank had previously recognized an allowance for doubtful accounts for the impairment prior to the settlement. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List all debit entries before credit entries.) Date…
Whispering Company owes $190,000 plus $16,600 of accrued interest to Metlock State Bank. The debt is a 10-year, 10% note. During 2025, Whispering's business deteriorated due to a faltering regional economy. On December 31, 2025, Metlock State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $344,000, accumulated depreciation of $189,200, and a fair value of $166,000. (a) Prepare journal entries for Whispering Company and Metlock State Bank to record this debt settlement. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when the amount is ent ed. Do not indent manually. List all debit entries before credit entries.) No. Date Account Titles and Explanation Whispering Company (Debtor): Debit Credit
On January 1, 2001, XDR Bank extended a P900,000 loan to SRN, Inc. Principal is due on December 31, 2005 but 12% interest is due annually every December 31. On December 31, 2003, SRN, Inc. was delinquent and it was ascertained that the loan is impaired. XDR Bank assessed that interests accruing on the loan will not be collected; however, the principal is expected to be received in three equal annual installments starting on December 31, 2004. Accrued interest receivable on December 31, 2003 amounted to P100,000. The current market rate on December 31, 2003 is 14%. How much is the balance of allowance for impairment loss on December 31, 2003 immediately after impairment testing?
Bramble Company owes $236,000 plus $21,500 of accrued interest to Sunland State Bank. The debt is a 10-year, 10% note. During 2020, Bramble’s business deteriorated due to a faltering regional economy. On December 31, 2020, Sunland State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $383,000, accumulated depreciation of $210,650, and a fair value of $215,000. Prepare journal entries for Bramble Company and Sunland State Bank to record this debt settlement. How should Bramble report the following in its 2020 income statement? Assume that, instead of transferring the machine, Bramble decides to grant 16,000 shares of its common stock ($10 par) which has a fair value of $215,000 in full settlement of the loan obligation. If Sunland State Bank treats Bramble’s stock as a trading investment, prepare the entries to record the transaction for both parties.
Ivanhoe Company owes $179,000 plus $15,800 of accrued interest to Shamrock State Bank. The debt is a 10-year, 10% note. During 2020, Ivanhoe’s business deteriorated due to a faltering regional economy. On December 31, 2020, Shamrock State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $336,000, accumulated depreciation of $184,800, and a fair value of $158,000. Prepare journal entries for Ivanhoe Company and Shamrock State Bank to record this debt settlement. Assume that, instead of transferring the machine, Ivanhoe decides to grant 12,000 shares of its common stock ($10 par) which has a fair value of $158,000 in full settlement of the loan obligation. If Shamrock State Bank treats Ivanhoe’s stock as a trading investment, prepare the entries to record the transaction for both parties
Bonita Company owes $167,000 plus $14,900 of accrued interest to Windsor State Bank. The debt is a 10-year, 10% note. During 2020, Bonita's business deteriorated due to a faltering regional economy. On December 31, 2020, Windsor State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $322,000, accumulated depreciation of $177,100, and a fair value of $149,000. (a) Prepare journal entries for Bonita Company and Windsor State Bank to record this debt settlement. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date December 31, 2020 Account Titles and Explanation Bonita Company (Debtor): Notes Payable Interest Payable Debit 167,000 14,900 Credit
2. Utok Company owes P2,000,000 plus P180,000 of accrued interest to Alambre State Bank. The debt is a 10-year, 10% note. During 2016, Utok's business deteriorated due to a faltering regional economy. On December 31, 2016, Alambre State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of P3,900,000, accumulated depreciation of P2,210,000 and fair value of P1,900,000, How much should Utok Company report in its profit or loss as a result of the financial liability's derecognition?
On December 31, 2021 Mickey Mouse Corporation has been experiencing financial difficulty due to pandemic. Minnie Mouse Corporation had a Note Receivable from Mickey Mouse Corporation amounting to P5,000,000 which bears an interest of 10%. It also has an accrued interest of P500,000. Mickey Mouse Corporation and Minnie Mouse had an agreement to modify the notes. The following is the modification terms.- Reduction of Principal to P4,000,000- Reduction of interest to 8% payable annually beginning December 2022.- Principal payment is was reset to be paid on December 31, 2023.How much is the interest income on December 31, 2022? choices: 386,004 393,956 320,000 300,000
Strickland Company owes $200,000 plus $18,000 of accrued interest to Moran State Bank. The debt is a 10-year, 10% note. During 2020, Strickland's business deteriorated due to a faltering regional economy. On December 31, 2020, Moran State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $390,000, accumulated depreciation of $221,000, and a fair value of $180,000. Instructions a. Prepare journal entries for Strickland Company and Moran State Bank to record this debt settlement. b. How should Strickland report the gain or loss on the disposition of machine and on restructuring of debt in its 2020 income statement? c. Assume that, instead of transferring the machine, Strickland decides to grant 15,000 shares of its common stock ($10 par) which has a fair value of $180,000 in full settlement of the loan obligation. If Moran State Bank treats Strickland's stock as a trading investment, prepare the entries to record the transaction for both…
On December 31 , 2018 Nicholas Co. is in financial difficulty and cannot pay a note due that day . It is a $3,300,000 8% issued at par note, payable to Key Bank. Key Bank agrees to accept from Nicholas equipment that has a fair value of 1,450,000, originally costing $2,400,000, with accumulated depreciation of $1,250,000. Key Bank also extends the maturity date to December 31, 2021, reduces the face amount of the note to $1,250,000, and reduces the interest rate to 6%, with interest payable at the end of each year. a. Nicholas should recognize a gain or loss on the transfer of the equipment of: b. At the end of each of the next three years Nicholas records the $ 75,000 interest paid to Key Bank as a: c. In determining the carrying value of the note at December 31, 2018 Key Bank uses an effective interest rate equal to: d. Key Bank records a loss on restructuring of: e. In recording the loss on restructuring, Key bank: