Question

Brewer Inc. is owed $212,000 by Carol Co. under a 10% note with two years remaining to maturity. Due to financial difficulties Carol Co. did not pay the prior year's interest. Brewer agrees to settle the receivable (and accrued interest) in exchange for a cash payment of $162,000. The journal entry that Brewer would make to record this transaction would include a loss on troubled debt restructuring as bad debt expense in the amount of:

Answer 1

General Journal

Date Accounts Titles and Explanations Debit Credit

Cash $162,000

Loss on troubled debt $71,200

restructuring (plug)

Accrued Interest Receivable

($212,000*10%) $21,200

Note Receivable $212,000

(To record loss on troubled debt restructuring on settlement)