Use the following information for questions 44-46.
On December 31, 2020, Diaz Corp. is in financial difficulty and cannot pay a $ 900,000 note with $ 90,000 accrued interest payable to Cameron Ltd., which is now due. Cameron agrees to accept from Diaz equipment that has a fair value of $ 435,000, an original cost of $ 720,000, and accumulated depreciation of $ 345,000. Cameron also forgives the accrued interest, extends the maturity date to December 31, 2022, reduces the face amount of the note to $ 375,000, and reduces the market interest rate of 6%, with interest payable at the end of each year.
-Diaz should recognize a gain on the partial settlement and restructure of the debt of
A) $ 0.
B) $ 22,500.
C) $ 112,500.
D) $ 180,000.

Question

Quizplus · Accepted Answer

The gain on the partial settlement is calculated as the difference between the carrying amount of the debt ($990,000) and the sum of the fair value of the equipment ($435,000) and the restructured note ($375,000). Gain = $990,000 - ($435,000 + $375,000) = $180,000.

Use the Following Information for Questions 44-46