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16 July, 04:30

During 2018 Belair Company was encountering financial difficulties and seemed likely to default on a $600,000, 10%, four-year note dated January 1, 2016, payable to Second Bank. Interest was last paid on December 31, 2017. On December 31, 2018, Second Bank accepted $500,000 in settlement of the note. Ignoring income taxes, what amount should Belair report as a gain from the debt restructuring in its 2018 income statement?

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  1. 16 July, 04:39
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    gain from the debt restructuring = $160,000

    Explanation:

    given data

    principal = $600,000

    rate = 10%

    settlement = $500,000

    to find out

    gain from the debt restructuring in income statement

    solution

    we get here owed a total that is

    owed a total = Principal + Unpaid interest ... 1

    put here value

    owed a total = $600,000 + $60,000

    owed a total = $660,000

    and

    gain from the debt restructuring is here as

    gain from the debt restructuring = owed a total - settled ... 2

    gain from the debt restructuring = $660,000 - $500,000

    gain from the debt restructuring = $160,000
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