During 2013 Marquis Company was encountering financial difficulties and seemed likely to default on a $300,000, 10%, four-year note dated January 1, 2011, payable to Third Bank. Interest was last paid on December 31, 2012. On December 31, 2013, 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 2013 income statement?
A)$20,000.
B)$50,000.
C)$80,000.
D)$0.

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 is $300,000 plus the unpaid interest for 2013 ($30,000), totaling $330,000. The settlement amount is $250,000. Therefore, the gain is $330,000 - $250,000 = $80,000.

During 2013 Marquis Company Was Encountering Financial Difficulties and Seemed