Gottlieb Co. owes $227,200 to Ceballos Inc. The debt is a 10-year, 11% note. Bec
ID: 2498593 • Letter: G
Question
Gottlieb Co. owes $227,200 to Ceballos Inc. The debt is a 10-year, 11% note. Because Gottlieb Co. is in financial trouble, Ceballos Inc. agrees to accept land and cancel the entire debt. The land has a book value of $97,700 and a fair value of $143,800. (a) Prepare the journal entry on Gottlieb’s books for debt restructure. (b) Prepare the journal entry on Ceballos’s books for debt restructure.
(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.)
Explanation / Answer
(a) Gottlieb Co.'s entry:
Dr Note Payable $227,200
Cr Property $97,700
Cr Gain on Property Disposition $46,100 ($143,800 - $97,700)
Cr Gain on Restructuring $83,400
To calculate gain on restructuring: $227,200 (Note payable) - $143,800 (FMV of property)
(b) Ceballos Inc. entry:
Property $143,800
Allowance for Doubtful Accounts $83,400 (or Bad Debt Expense)
Note Receivable $227,200
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