Question
Your firm issued bonds with face value of $600,000 on 1/1/2019. The effective interest rate is 8% annually, and the bonds pay cash interest of
Your firm issued bonds with face value of $600,000 on 1/1/2019. The effective interest rate is 8% annually, and the bonds pay cash interest of 6% of face value annually on 12/31 of each year.
Your firm missed its interest payment on 12/31/2022. The book value of the debt on 12/31/2022 was $567,960. On 1/1/2023, your firm and the investor agree to settle all obligations related to the bonds in exchange for an internet patent your firm has owned. The fair value of the patent on 12/31/2022 is $536,000 and its book value on this date is $405,000.
Make the entry for your firm's settlement of the troubled debt.
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