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?

Question

Business

Kaelyn Booth

10 September, 14:26

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?

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Answers (1)

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Amy Thomas · Answer 1

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