[Iggy1985]

Hoping someone can help me figure this out.. I know the gain for the debtor is the difference between the cv of the note and the fmv of asset given up, but what would the J/E be since land is only on the books for 75k? Thanks!

Ace Corp. entered into a troubled debt restructuring agreement with National Bank. National agreed to accept land with a carrying amount of $75,000 and a fair value of $100,000 in exchange for a note with a carrying amount of $150,000. Disregarding income taxes, what amount should Ace report as a gain on restructuring the debt?

$50,000

This answer is correct. The gain on restructuring the debt would be the difference between the carrying amount of the note received and the FMV of the land given. The amount that Ace should report as gain in its income statement is

$150,000 CV of note

– 100,000 FMV of land

$ 50,000 Gain on restructuring the debt

FAR - 89 (8/19/14) Wiley TB, Wiley Book, Books from School, Ninja Audio/Notes
AUD - 92 (10/14/14) Wiley TB, Wiley Book, Ninja Audio
BEC - 82 (5/8/15) Mostly Ninja MCQ, sprinkles of Becker lectures and Ninja Audio
REG - (8/14/15)

[M.O.D.]

You need two entries:

One to recognize gain on FMV, the second for restructuring

Land 25

…Gain on FMV 25

Loan 150

… Land 100

… Gain on restructuring 50

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[Iggy1985]

Thanks!

FAR - 89 (8/19/14) Wiley TB, Wiley Book, Books from School, Ninja Audio/Notes
AUD - 92 (10/14/14) Wiley TB, Wiley Book, Ninja Audio
BEC - 82 (5/8/15) Mostly Ninja MCQ, sprinkles of Becker lectures and Ninja Audio
REG - (8/14/15)

[Anonymous]

DR Note payable 150000

CR Land 75000

CR Gain on sale of land 25000

CR Gain on debt restructuring 50000

[jstay]

gain on sale of land would be ordinary

and gain on debt restructuring is possibly extraordinary

[Zhaba]

M.O.D.: What is the rational for writing up Land? I thought write ups are not permitted under US GAAP.

[M.O.D.]

This is part of troubled debt restructuring:

The only purpose for the revaluation of the land/asset is to differentiate the gain/loss from the settlement for a debt and the gain/loss from disposal.

This is not for the balance sheet, but for the income statement.

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[Author]

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