1. On December 31, 2012, Nolte Co. Is in financial difficulty and cannot pay a note due...
Question:
1. On December 31, 2012, Nolte Co. Is in financial difficulty and cannot pay a note due that day. It is a $1,800,000 note with $180,000 accrued interest payable to Piper, Inc. Piper agrees to accept from Nolte equipment that has a fair value of $870,000, an original cost of $1,440,000, and accumulated depreciation of $690,000. Piper also forgives the accrued interest, extends the maturity date to December 31, 2015, 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. Nolte should recognize a gain or loss on the transfer of the equipment of
a. $0.
b. $120,000 gain.
c. $180,000 gain.
d. $570,000 loss.
2. Nolte should recognize a gain on the partial settlement and restructure of the debt of
a. $0.
b. $45,000.
c. $165,000.
d. $225,000.