At January 1, 2018, Transit Developments owed First City Bank Group $700,000, un

Question

At January 1, 2018, Transit Developments owed First City Bank Group $700,000, under arn 12% note with three years remaining to maturity. Due to financial difficulties, Transit was unable to pay the previous year's interest. First City Bank Group agreed to settle Transit's debt in exchange for land having a fair value of $550,000. Transit purchased the land in 2014 for $375,000. Required: Prepare the journal entry(s) to record the restructuring of the debt by Transit Developments. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Explanation / Answer

Transit Developments

Journal

Interest payable on 12% Note = 700,000 x 12%

= $84,000

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Date Account Debit Credit 2018, Jan. 1 Note payable 700,000 Interest payable 84,000 Land 175,000 Land 550,000 Gain on Land transfer 175,000 Gain on debt settlement 234,000

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