INTERMEDIATE ACCOUNTING II QUIZ 2 Score Name Section Problem 10 points) Quito, I
ID: 2333861 • Letter: I
Question
INTERMEDIATE ACCOUNTING II QUIZ 2 Score Name Section Problem 10 points) Quito, Inc., which owes Ecuador Company $1,200,000 in notes payable, is in financial difficulty. To eliminate the debt, Ecuador agrees to accept from Quito land having a fair market value of S810,000 and a recorded cost of $620,000. REQUIRED: Compute the amount of gain or loss to Quito, Inc. on the transfer (2) Compute the amount of gain or loss to Quito, Inc. on the settlement of the (3) Prepare the journal entry on Quito's books to record the settlement of this (4) Compute the gain or loss to Ecuador Company from settlement of its (5) Prepare the journal entry on Ecuador's books to record the settlement of this (disposition) of the land. debt. debt. Omit explanation. receivable from Quito. receivable. Omit explanationExplanation / Answer
Solution 1 Amount of gain or loss to Quito on the transfer of land Particulars Amount ($) Market value of land 8,10,000 Less: Book Value 6,20,000 Profit on Transfer of land 1,90,000 2 Amount of gain or loss to Quito on settlement of debt Particulars Amount ($) Notes payable 12,00,000 Less: Market value of land 8,10,000 Profit on settlement of debt 3,90,000 3 Journal Entry Particulars Debit Amount ($) Credit Amount ($) Notes Payable A/c……………….Dr 12,00,000 To Land A/c 6,20,000 To Profit on transfer of land and settlement of debt 5,80,000 4 Amount of gain or loss to Equador from settlement of its receivable from Quito Particulars Amount ($) Notes receivable 12,00,000 Less: Land received (Market Value) 8,10,000 Loss from settlement of receivable 3,90,000 5 Journal Entry Particulars Debit Amount ($) Credit Amount ($) Land A/c……………….Dr 8,10,000 Loss on settlement of debt A/c 3,90,000 To Notes receivable A/c 12,00,000
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