During 2016 Marquis Company was encountering financial difficulties and seemed likely to default on a $300,000,10%,four-year note dated January 1,2014,payable to Third Bank.Interest was last paid on December 31,2015.On December 31,2016,Third Bank accepted $250,000 in settlement of the note.Ignoring income taxes,what amount should Marquis report as a gain from the debt restructuring in its 2016 income statement?

Question

Quizplus · Accepted Answer

The gain from debt restructuring is calculated as the difference between the carrying amount of the debt and the settlement amount. The carrying amount of the debt includes the principal of $300,000 and the unpaid interest for 2016, which is $30,000 (10% of $300,000). Thus, the total carrying amount is $330,000. The settlement amount is $250,000. Therefore, the gain is $330,000 - $250,000 = $80,000.

During 2016 Marquis Company Was Encountering Financial Difficulties and Seemed