Use for questions 66 through 68 -- On December 31, 2005, Reese Co. is in financial difficulty and cannot pay a note due that day. It is a 10%, 600,000 note with 60,000 accrued interest payable to Titan, Inc. Titan agrees to accept from Reese equipment that has a fair value of 290,000, an original cost of 480,000, and accumulated depreciation of 230,000. Titan also forgives the accrued interest, extends the maturity date to December 31, 2008, and reduces the face amount of the note and the interest rate payable at the end of each year such that the present value of these two payments over 3 years at 8% (the current risk rate) is 295,000.

66. Reese should recognize a gain or loss on the transfer of the equipment of:

A. 0.

B. 40,000 gain.

C. 60,000 gain.

D. 190,000 loss.

67. Reese should recognize a gain on the partial settlement and restructure of the debt of:

A. 0.

B. 15,000.

C. 55,000.

D. 75,000.

68. Reese should record interest expense for 2006 of:

A. 0.

B. 29,600.

C. 23,600.

D. 45,000.