In: Accounting
Mourinho Company is indebted to Guardiola Bank under a $550,000, 12%, three-year note dated December 31, 2018. Because of Morinho's financial difficulties developing in 2020, Mourinho owed accrued interest of $65,000 on the note at December 31, 2020. Under a troubled debt restructuring, on December 31, 2020, Guardiola agreed to settle the note and accrued interest for a building having a fair value of $410,000. The building has a cost of $820,000 and accumulated depreciation of $308,000. How much gain/loss on the disposition of land and on restructuring of debt should Mourinho record, respectively?
Solution:
Particulars | Amount in $ |
Cost of Land | 820,000 |
Less: accumulated Depreciation | 308,000 |
Balance | 512,000 |
Fair value of Building | 410,000 |
Gain / (Loss) on Building | (102,000) |
Particulars | Amount in $ |
Face value of 12% Notes | 550,000 |
Accured Interest | 65,000 |
Total | 615,000 |
Fair value of Building | 410,000 |
Gain / Loss on Loan Restructuring | 205,000 |
Loss on Disposition of Building / Land = $ 102,000 Loss
Gain on restructuring of Debts = $ 205,000 Gain