Question

Marigold Corp. is indebted to Ivanhoe under a $960000, 13%, three-year note dated December 31, 2019. Because of Marigolds financial difficulties developing in 2021, Marigold owed accrued interest of $124800 on the note at December 31, 2021. Under a troubled debt restructuring, on December 31, 2021, Ivanhoe agreed to settle the note and accrued interest for a tract of land having a fair value of $870000. Marigolds acquisition cost of the land is $720000.

Required:
1. Ignoring income taxes, on its 2021 income statement, what should Marigold report as its gain on disposal and restructuring gain?

Answer 1

$150,000 and $214,800

Step-by-step explanation:

The computation is shown below:

Gain on disposal = Fair value of the land - cost of the land

= $870,000 - $720,000

= $150,000

Now the restructuring gain is

= Loan amount + accrued interest - fair value of the land

= $960,000 + $124,800 - $870,000

= $214,800

We simply applied the above formulas so that the gain on disposal and restructuring gain could come