Exercise 14-26 Pronghorn Co. owes $198,700 to Stellar Inc. The debt is a 10-year

Question

Exercise 14-26

Pronghorn Co. owes $198,700 to Stellar Inc. The debt is a 10-year, 11% note. Because Pronghorn Co. is in financial trouble, Stellar Inc. agrees to accept some land and cancel the entire debt. The land has a book value of $83,200 and a fair value of $130,700.

(If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

(a) Prepare the journal entry on Pronghorn’s books for debt restructure. (b) Prepare the journal entry on Stellar’s books for debt restructure. Credit No. Account Titles and Explanation (a) Pronghorn Co.'s entry: Debit (b) Stellar Inc. entry:

Explanation / Answer

Ans:

(a) Journa entry in the books of Pronghorn's:

11% note A/c Dr 1,98,700

To Land A/c 1,30,700

To Reconstruction A/c 68,000

(Being settlement of debt)

(b). Journal entry in the books of Stellar:

Land A/c Dr 1,30,700

Reconstruction A/c Dr 68,000

To 11% note A/c 1,98,700

(being land is acquired in full settlement of 11% note receivables)

Note: thank you, feel free ask incase of any further assistance.

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