On December 31, 2015, Waterway Industries is in financial difficulty and cannot pay a note due that day. It is a $2900000 note with $290000 accrued interest payable to Carla Vista, Inc. Carla Vista agrees to accept from Waterway equipment that has a fair value of $1440000, an original cost of $2400000, and accumulated depreciation of $1160000. Carla Vista also forgives the accrued interest, extends the maturity date to December 31, 2018, reduces the face amount of the note to $1230000, and reduces the interest rate to 5%, with interest payable at the end of each year.
Nolte should recognize a gain or loss on the transfer of the equipment of
a. $0.
b. $120,000 gain.
c. $180,000 gain.
d. $570,000 loss.
Nolte should recognize a gain on the partial settlement and restructure of the debt of
a. $0.
b. $45,000.
c. $165,000.
d. $225,000.
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