Question

Diamond Company was experiencing financial difficulties, but was not bankrupt or insolvent. The American Bank, which held a mortgage on other real estate owned by Diamond, reduced the principal from $110,000 to $85,000. The bank had made the loan to Diamond when it purchased the real estate from Aquamarine, Inc. Indigo, Inc., the holder of a mortgage on Diamond's building, agreed to accept $40,000 in full payment of the $55,000 due. Indigo had sold the building to Diamond for $150,000 that was to be paid in installments over eight years. As a result of the above, Diamond must:

a) Declare bankruptcy immediately.

b) Pay off the remaining mortgage balance to Indigo.

c) Pay a penalty for the reduced principal to the American Bank.

d) Continue paying installments to Aquamarine, Inc.

Answer 1

Diamond Company is not required to declare bankruptcy, pay off the remaining mortgage balance to Indigo, or pay a penalty for the reduced principal to the American Bank. Diamond must continue paying installments to Aquamarine, Inc.

Step-by-step explanation:

Diamond Company, although experiencing financial difficulties, is not bankrupt or insolvent. The American Bank, which holds a mortgage on Diamond's real estate, reduced the principal from $110,000 to $85,000. Indigo, Inc., the holder of a mortgage on Diamond's building, agreed to accept $40,000 in full payment of the $55,000 due. As a result of these actions, Diamond is not required to declare bankruptcy, pay off the remaining mortgage balance to Indigo, or pay a penalty for the reduced principal to the American Bank. Diamond must continue paying installments to Aquamarine, Inc. as agreed upon.