Mann, Inc., which owes Doran Co. $1,000,000 in notes payable with accrued interest of $90,000, is...

Mann, Inc., which owes Doran Co. $1,000,000 in notes payable with accrued interest of $90,000, is in financial difficulty. To settle the debt, Doran agrees to accept from Mann equipment with a fair value of $950,000, an original cost of $1,400,000, and accumulated depreciation of $325,000.

Instructions

(a) Compute the gain or loss to Mann on the settlement of the debt.

(b) Compute the gain or loss to Mann on the transfer of the equipment.

(c) Prepare the journal entry on Mann’s books to record the settlement of this debt.

(d) Prepare the journal entry on Doran’s books to record the settlement of the receivable.

Expert Solution

a
Gain on settlement:
Total debt	1,090,000
Less FMV of property	(950,000)
Gain on settlement	140,000


b
Book value of property	1,075,000
Less FMV	(950,000)
Loss on transfer	125,000


c
Account	Debit	Credit
Notes payable	1,000,000
Interest payable	90,000
Gain on extinguishment of debt		140,000
Loss on sale of property	125,000
Equipment		1,400,000
Accumulated depreciation	325,000

d
Account	Debit	Credit
Equipment	950,000
Bad debt expense	140,000
Notes receivable		1,000,000
Interest receivable		90,000

ekkarill92 answered 2 years ago

Prepare year end adjusting entries for these situations. 1. Accrued interest on notes payable is $80....

Prepare year end adjusting entries for these situations. 1. Accrued interest on notes payable is $80. 2. Income taxes incurred but not paid or recordered total to $1,000. 3. Legal fees of $5000 were received in advanced. By the end of the year, 80% of the fees were earned. 4. Services totaling $1,000 have been completed but not recorded or billed. 5. Payroll for the work week (five days) to be paid on Friday is $10,000. The year ends on...

Interest has accrued at 7% on the long-term notes payable since July 1, 2018. The next...

Interest has accrued at 7% on the long-term notes payable since July 1, 2018. The next six month interest payment at 6.9% on the bond is due on March 1, 2019. The original discount on bonds payable is $15,800. No portion of the discount has been amortized for any part of 2018; the bonds are 10-yr maturity (Use Straight-line). Notes Payable (LT) 1/1 Bal $43,000 7/1 Increased Mortgage CR $70,000 7/1 Bal $ $113,000 Discount on Bonds Payable 1/1 Bal...

Marin Company owes $225,000 plus $20,200 of accrued interest to Headland State Bank. The debt is...

Marin Company owes $225,000 plus $20,200 of accrued interest to Headland State Bank. The debt is a 10-year, 10% note. During 2020, Marin’s business deteriorated due to a faltering regional economy. On December 31, 2020, Headland State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $317,000, accumulated depreciation of $174,350, and a fair value of $202,000. Prepare journal entries for Marin Company and Headland State Bank to record this debt...

Which of the following statements is correct for a U.S. importing firm that owes GBP 1,000,000...

Which of the following statements is correct for a U.S. importing firm that owes GBP 1,000,000 payable in three months? Assume the company's WACC is 12% p.a. and the U.K. deposit rates are 8% p.a. The current spot rate is USD1.45/GBP and the 3-month forward rate is USD1.50/GBP. The U.S. importer can lock the payable at the cost of USD 1,450,000 using a forward contract The forward hedge is more expensive than the money market hedge for the importer Using...

Which of the following will not rise spontaneously with an increase in sales? Accounts payable Accrued...

Which of the following will not rise spontaneously with an increase in sales? Accounts payable Accrued wages Accrued taxes Accounts receivable Notes payable

Failure to make a necessary adjusting entry for accrued interest on a note payable would result...

Failure to make a necessary adjusting entry for accrued interest on a note payable would result in which of the following? A.) Net income would be overstated and assets would be understated. B.) Net income would be understated and liabilities would be understated. C.) Liabilities and stockholders' equity would both be understated. D.) Net income and stockholders' equity would be overstated and liabilities would be understated.

Account for notes receivable and accrued interest revenue P4-47B Lilley & Taylor, partners in an accounting...

Account for notes receivable and accrued interest revenue P4-47B Lilley & Taylor, partners in an accounting practice, completed the following selected transactions: 2016 Oct. 31 Performed service for Berger Manufacturing Inc., receiving a $30,000, three-month, 5% note. Dec. 31 Made an adjusting entry to accrue interest on the Berger note. 2017 Jan. 31 Collected the Berger note. Feb. 18 Received a 90-day, 8%, $10,000 note from Emerson Ltd., on account. 19 Sold the Emerson note to a financial institution, receiving...

Notes receivable and notes payable a) On December 1, 2018, Hawkins, Inc. loaned money to a...

Notes receivable and notes payable a) On December 1, 2018, Hawkins, Inc. loaned money to a customer who signed a note having a face value of $16,200. The note is due on May 1, 2019 and does not specific an interest rate. Hawkins credited cash for $15,500 on December 1 as a result of the loan. Required: Prepare the entry on the books of Hawkins, Inc. to record the note-related activity on: December 1, 2018 December 31, 2018...

14 On January 1, 2014, Ermler Company, a calendar-year company, issued $1,000,000 of notes payable, of...

14 On January 1, 2014, Ermler Company, a calendar-year company, issued $1,000,000 of notes payable, of which $250,000 is due on January 1 for each of the next four years. The proper balance sheet presentation on December 31, 2014, is Select one: a. Current liabilities, $250,000; Long-term Debt, $750,000. b. Current liabilities, $1,000,000. c. Long-term debt , $1,000,000 d. Current liabilities, $500,000; Long-term Debt, $500,000

Notes Receivable Entries The following data relate to notes receivable and interest for Owens Co., a...

Notes Receivable Entries The following data relate to notes receivable and interest for Owens Co., a financial services company. (All notes are dated as of the day they are received.) Assume 360 days in a year. Mar. 8. Received a $66,000, 9%, 60-day note on account. 31. Received a $9,600, 8%, 90-day note on account. May 7. Received $66,990 on note of March 8. 16. Received a $61,200, 7%, 90-day note on account. June 11. Received a $30,000, 6%, 30-day...

Question