Question
At January 1, 2021, TD Industries owed First Bank $300,000, under an 11% unsecured note with three years remaining to maturity. Due to unanticipated financial
At January 1, 2021, TD Industries owed First Bank $300,000, under an 11% unsecured note with three years remaining to maturity. Due to unanticipated financial difficulties resulting from a devastating downturn in business volume, TD was suffering from serious cash flow problems. One consequence was that TD was unable to pay the previous year's (2020) interest of $33,000. It was in the best interest of both TD and First Bank to work together to reach an agreement to settle TD's debt. Although First Bank has no interest in owning real estate, the solution was that First Bank agreed to settle TD's debt in exchange for a parcel of land having a fair value of $225,000. TD had purchased the land in 2017 for $162,000, intending to eventually use it to build another plant, to extend business operations. That expansion was never started and now the survival of the business is a critical priority. Elimination of TD's debt is a necessary action and First Bank made the best deal it could to protect its financial interests in this matter.
Required: Prepare the journal entry(s) to record the restructuring of the debt by TD. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
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