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Guido Properties owes First State Bank $60 million under a 7% note with two years remaining to maturity. Due to financial difficulties of Guido, the
Guido Properties owes First State Bank $60 million under a 7% note with two years remaining to maturity. Due to financial difficulties of Guido, the previous years interest ($4.2 million) was not received. The bank agrees to settle the note receivable and accrued interest receivable in exchange for land having a fair value of $44 million. Assume that $5 million of bad debt expense has previously been accrued for this loan, resulting in a balnce of $5 million in the allowance for uncollectible accounts before this statement.
Required:
Compte the loss on troubled debt restructuring that the bank would record as its bad debt expense upon settlement of the note and interest.
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