Assume that Circuit City owes Synovus Bank $1,000,000 on a 4-year, 7% note originally issued at par.

Question:

Assume that Circuit City owes Synovus Bank $1,000,000 on a 4-year, 7% note originally issued at par. After one year of making scheduled payments, Circuit City faces financial difficulty. At the end of the second year, Circuit City owes Synovus $1,000,000 plus $70,000 of accrued but unpaid interest. Circuit City settles the debt by paying $700,000 in cash and transferring investments to Synovus. Circuit City recently purchased the investments for $120,000 and carried them on the books at that amount. The investments are worth $135,000 at the date of the debt settlement. Use the template below to show the financial statement effects of the debtsettlement.