6. On December 31, 2016, Tara Lewis Company is in financial difficulty and canno

Question

6. On December 31, 2016, Tara Lewis Company is in financial difficulty and cannot pay a noted is a $1,800,000 note with $180,000 accrued interest payable to First Bank. First Bank agrees to accept Tara Lewis Company equipment that has a fair value of $870,000, an original cost of $1,440,000 accumulated depreciation of $690,000. First Bank also forgives the accrued interest, extends the maturity date to December 31, 2019, reduces the face amount of the note to $750,000, and reduces the interest rate to 6%, with interest payable at the end of each year ue that day. l from , and Prepare the journal entry to record the December 31, 2016 event on Tara Lewis Company's accounting records

Explanation / Answer

Journal Entry as on December 31, 2016 Date Account Titles Debit Credit Dec.31,2016 Note Payable $1,050,000.00 Accrured Interest Payable $180,000.00 Accumulated Depreciation - Equipment $690,000.00 Equipment $1,440,000.00 Gain on Exchange of Equipment $480,000.00

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