Sportz Bykes, Inc., approached its bankers, the United Bank of Canada to seek for accommodation on a debt SBI owed. The said debt consisted of a 10%, 4-year note payable, issued at par and due July 1, 2022 for an amount of $380,000. All interest due on the debt was already settled by SBI. The two entities agreed to the following revised terms presented by SBI:

The amended terms would become effective July 1, 2022;

the principal payable was reduced to $300,000 and would be due July 1, 2024;

the annual interest payments are to be reduced to 6% of the revised principal for the years, 2022-23 and 2023-24; and

the market rate on July 1, 2022 was determined to be 9% .

Sportz Bykes, Inc., , had approached its bankers the United Bank of Canada with a plan to seek for accommodation on a debt SBI owed. Assume that when UBC turned down that plan, SBI offered an alternate option. It offered to submit the ownership of an office property in exchange for a cash payment of $120,000 by the bank plus the settlement of their debt. The property was carried in the books of SBI at a net book value of only $175,000 and its fair market value was evaluated at $487,000. Further assume that UBC decided to accept the proposed terms. The deal was settled on July 1, 2022 and SBI incurred additional costs of $15,000 as legal fees.

The journal entry in the books of SBI to record this settlement transaction would be:

a.DR Note Payable ........ $380,000; DR Cash ........ $105,000; Loss on Settlement of Debt ........ $2,000; CR Office Property ........ $175,000; CR Gain on Disposal of Property ........ $312,000.

b.DR Note Payable ........ $300,000; DR Cash ........ $120,000; DR Loss on Settlement of Debt ........ $67,000; CR Office Property ........ $487,000

c.DR Note Payable ........ $380,000; DR Cash ........ $120,000; CR Office Property ........ $487,000; CR Gain on Settlement of Debt ........ $13,000

d.DR Note Payable ........ $380,000; DR Cash ........ $120,000; DR Loss on Settlement of Debt ........ $299,000 CR Office Property ........ $487,000; CR Gain on Disposal of Property ........ $312,000

e.None of the above answers.