Question

XYZ CORP HAS THE FOLLOWING DATA REGARDING A NP AND THE COLLATERALIZED MACHINE:

NOTE PAYABLE 185,000

INTEREST PAYABLE 6,000

OLD MACHINE COST 275,000

OLD MACHINE ACCUMULATED DEPRECIATION (180,000)

OLD MACHINE FAIR MARKET VALUE 89,000

THE BANK FORECLOSED IN FULL SATISFACTION OF THE NOTE AND ACCRUED INTEREST.

REQUIRED: WHAT IS XYZ'S GAIN OR (LOSS) ON MACHINE DISPOSAL? (PLEASE INDICATE GAINS AS A POSITIVE NUMBER AND LOSS AS A NEGATIVE NUMBER)

REQUIRED: WHAT IS XYZ'S GAIN ON DEBT RESTRUCTURING?

Answer 1

	Following entry will be passed for restructuring
	Accounting title and explanation	Dr($)	Cr($)
	Note Payable	$      185,000
	Interest Payable	$          6,000
	Accumulated Depreciation - Machine	$      180,000
	Loss on disposal of machine	$          6,000
	Machine		$      275,000
	Gain on restructuring		$      102,000
Working:	Fair value of machine		89,000
	Machine Cost	$           275,000
	Less: Accumulated depreciation	(180,000)
	Book Value of machine		95,000
	Loss on disposal of machine		(6,000)	(89000-95000)
	Gain on restructuring:
	Note payable	$           185,000
	Interest Payable	6,000
	Total liability	191,000
	Value of machine given	89,000
	Gain on restructuring:	$           102,000	(191000-89000)