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Rochelle Co. owes $199,800 to Simmons Inc. The debt is a 10-year, 11% note. Because Rochelle...

Rochelle Co. owes $199,800 to Simmons Inc. The debt is a 10-year, 11% note. Because Rochelle Co. is in financial trouble, Simmons Inc. agrees to accept some land and cancel the entire debt. The land has a book value of $90,000 and a fair value of $140,000. Prepare the journal entry on Rochelle books for debt settlement.

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Answer #1

Answer: In the books of Rochelle Co.

11% Notes payable A/c $      199,800
        Land A/c $      90,000
        Gain on Disposition of Land A/c $      50,000 =140000-90000
        Gain on Debt Restructuring A/c $      59,800 =199800-140000
(To record debt restructuring arrangement with Simmons Co.)
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