Use the Following Information to Answer Bellow Questions
a Company

Use the following information to answer bellow Questions
A company emerging from Chapter 11 reorganization has the following balance sheet:
$$\begin{array} { | l | r | l | r | } \hline \text { Cash } & \$ 25,000 & \text { Postpetition liabilities } & \$ 200,000 \\\hline \text { Account s receivable } & 60,000 & \text { Liabilities subject to compromise } & 1,500,000 \\\hline \text { Inventories } & 400,000 & \text { Common stock } & 300,000 \\\hline \text { Plant and equipment, net } & \underline { 1,200,000 } & \text { Retained deficit } & \underline { \{ 315,000 \ } \\\hline \text { Total } & \$ \underline { \$ 1,685,000 } & \text { Total } & \$ 1,685,000 \\\hline\end{array}$$ The plan of reorganization provides for the following:
• Estimated reorganization value is $1,300,000.
• Liabilities subject to compromise are replaced with $1,000,000 in notes payable and 80% of the new common stock issue.
• Existing shareholders receive 20% of the new stock issue
• Inventories and plant and equipment are written down to their fair values of $250,000 and $800,000, respectively.
• There are no previously unreported identifiable intangible assets.
-The entry to record settlement of liabilities subject to compromise results in a gain on discharge of debt of:

A) $400,000
B) $420,000
C) $500,000
D) $550,000