Question

In: Accounting

Jeffrey owns 100% of HR Company. In 2016, he lent the firm $70,000. In 2018, he...

Jeffrey owns 100% of HR Company. In 2016, he lent the firm $70,000. In 2018, he cancelled the debt. The results of this debt cancellation are:

A. HR Company recognizes $70,000 gain; no effect to Jeffrey

B. HR Company recognizes $70,000 gain; Jeffry has $70,000 bad debt

C. HR Company has no income; no effect to Jeffrey

D. HR Company has no income; Jeffrey has $70,000 bad debt

E. HR Company has no income; Jeffrey increases his basis in HR Company Stock

Expert Solution

Answer : The Statement B is correct, HR company recognizes $70,000 gain; Jeffry has $70,000 bad debt.

Working : When Jeffry lent the firm $70,000 in year 2016, The HR company shall pass the journal entry as:

Bank A/c Debit $70,000

Jeffrey Loan A/c Credit $70,000

At the time of cancellation of loan, HR company shall pass the journal entry as :

Jeffrey Loan A/c Debit $70,000

Income on Cancellation of Jeffrey loan A/c Credit $70,000

In the Same way, Jeffry shall record journal entry in his personal book as :

When the loan is given in 2016.

HR Firm A/c Debit $70,000

Bank A/c Credit $70,000

When the loan is cancelled in 2018.

Bad Debt A/c Debit $70,000

HR Firm A/c Credit $70,000

Therefore , HR company shall recognize income with $70,000 and Jeffrey shall record bad debts amounting $70,000.

Statement B is correct.

ekkarill92 answered 2 months ago

Practice Problem 1 On October 1, 2016, Microsun lent $90,000 to another company. A note was...

Practice Problem 1 On October 1, 2016, Microsun lent $90,000 to another company. A note was signed with principal and 8% interest to be paid on September 30, 2017. On November 1, 2016, the company paid its landlord $6,000 representing rent for the months of November through January. Prepaid rent was debited. On August 1, 2016, collected $12,000 in advance rent from another company that is renting a portion of Microsun's factory. The $12,000 represents one year's rent and the...

On December 31, 2018, Isiah Company, a financing institution lent P4,000,000 to Psalms Corp. due 3...

On December 31, 2018, Isiah Company, a financing institution lent P4,000,000 to Psalms Corp. due 3 years after. The loan is supported by an 8% note receivable. Transaction costs incurred to originate the loan amounted to P248,000. P374,000 was chargeable to Psalms as origination fees. Interests on the loan are collectible at the end of each year. The yield rate on the loan is 9.25%. Isiah was able to collect interest as it became due at the end of 2019....

A company is considering outsourcing their HR function. The reliability of the firm the company is...

A company is considering outsourcing their HR function. The reliability of the firm the company is considering would be [a] consideration.

In 2018 Mark owns 85% of Keller & Sons. Keller & Sons is a law firm...

In 2018 Mark owns 85% of Keller & Sons. Keller & Sons is a law firm and distributes Mark $165,000. The firm has sales income of 3,600,000 and operating expenses of $1,000,000. The firm has property with an unadjusted basis of $800,000 and paid W2 wages for the year of $400,000. Mark is married and his taxable income (excluding any income from Keller & Sons) is $350,000. For each independent scenario below explain how the entity will be taxed and...

Assume that you have a firm that owns land that is currently valued at $100 million...

Assume that you have a firm that owns land that is currently valued at $100 million and that the firm has $80 million of zero-coupon debt outstanding. The debt will mature in 1 year. In 1 year, the value of the land will either be $200 million or $50 million. The probability of the value of land increasing is 36.67%. The risk-free rate is 5%. The firm has 2 million shares outstanding. What is the price of 1 share for...

Hylie, a U.S. corporation, owns 100% of Frosan, a French firm. Assume that the dollar is...

Hylie, a U.S. corporation, owns 100% of Frosan, a French firm. Assume that the dollar is the functional currency, although the books are kept in euros. Required: What currency exchange rate would be used to re-measure Frosan's balance sheet into U.S. dollars? Choose from current, simple average, weighted average, or historical. a. Cash _____________________ b. Accounts Receivable _____________________ c. Inventory, carried at cost _____________________ d. Equipment _____________________ e. Accumulated Depreciation _____________________ f. Bonds Payable _____________________ g. Common Stock _____________________ h....

John Schumer operates three entities that he owns 100% in the Providence, RI area. There are...

John Schumer operates three entities that he owns 100% in the Providence, RI area. There are two limited liability companies (LLCs) and one S corporation. Each of the LLCs holds rental real estate. LLC 1 holds a six-story, multi-unit building. The minimum tenant stay there are 31 days. And there are mandatory housekeeping serviced provided on a bi-weekly basis. LLC 2 holds a single-family home rented on an annual basis. Both LLC's pay the S corporation a management fee. John...

Grace Company owns equipment that cost $70,000 when purchased on January 1, 2019. It has been...

Grace Company owns equipment that cost $70,000 when purchased on January 1, 2019. It has been depreciated using the straight-line method based on estimated salvage value of $7,000 and an estimated useful life of 5 years. Instructions: Prepare Grace Company’s journal entries to record the sale of the equipment in these four independent situations. Update depreciation on assets disposed of at time of sale. (a) Sold for $40,000 on January 1, 2019. (b) Sold for $40,000 on April 1, 2019....

On January 1, 2016, Tang Manufacturing Company purchased equipment for $70,000 and paid sales tax of...

On January 1, 2016, Tang Manufacturing Company purchased equipment for $70,000 and paid sales tax of $5,000. the equipment is expected to have a 4-year useful life and salvage value of $7,000. The company elects to use the staight-line depreciation method. Answer the follwoing "Show the work" 1) Compute the annual depreciation. 2) Compute the balance of accumulated depreciation at the end of 2017. 3) Compute the net book value of the equipment at the end of 2017 Scenario A:...

Magruder company is a domestic company and owns 100% of the stock of Hyacinth company. Magruder’s...

Magruder company is a domestic company and owns 100% of the stock of Hyacinth company. Magruder’s functional currency is the USD. Hyacinth is also a domestic company and files a consolidated income tax return with its parent, Magruder. Hyacinth conducts business in France and uses the French franc as it functional currency. Magruder generates net income of $1,000,000 in 2017 and Hyacinth generates income of 200,000 in French francs. How would your answer change if Hyacinth were a French corporation...