Use the following information for questions *103 through *105:
On December 31, 2012, Nolte Co. is in financial difficulty and cannot pay a note due that day. It is a $1,800,000 note with $180,000 accrued interest payable to Piper, Inc. Piper agrees to accept from Nolte equipment that has a fair value of $870,000, an original cost of $1,440,000, and accumulated depreciation of $690,000. Piper also forgives the accrued interest, extends the maturity date to December 31, 2015, reduces the face amount of the note to $750,000, and reduces the interest rate to 6%, with interest payable at the end of each year.
-Nolte should recognize a gain or loss on the transfer of the equipment of
A) $0.
B) $120,000 gain.
C) $180,000 gain.
D) $570,000 loss.

Question

Quizplus · Accepted Answer

The fair value of the equipment transferred to Piper is $870,000, whereas the carrying amount of the equipment is $750,000 ($1,440,000 cost - $690,000 accumulated depreciation). Therefore, Nolte should recognize a gain of $120,000 ($870,000 - $750,000). There is no indication in the question that a loss should be recognized.

Use the Following Information for Questions *103 Through *105

Use the Following Information for Questions 103 Through 105