Sharon owes Lawrence Co. $15,000 on a note payable, plus $3,000 of unpaid interest. Lawrence agrees to accept equipment in full settlement of the debt. The equipment is recorded on Sharon's books at $12,000, and it is currently worth $14,200. What types and amounts of gains or losses, if any, should be recorded by Sharon on this troubled debt restructuring?
A) No gain or loss should be recognized.
B) Gain on Debt Restructure, $6000
C) Gain on Debt Restructure, $3,800; Gain on Disposal of Equipment, $2,200
D) $6,000 Gain on Debt Restructure, $800; Gain on Disposal of Equipment, $2,200

Question

Quizplus · Accepted Answer

Sharon should recognize a Gain on Debt Restructure of $3,800 because the equipment valued at $14,200 settles a debt of $18,000 ($15,000 note payable + $3,000 interest), and a Gain on Disposal of Equipment of $2,200 because the equipment's book value is $12,000 but it is given up for a value of $14,200.

Sharon Owes Lawrence Co