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SECTION IV $-$DEBT RENEGOTIATION

Use the information given below to answer Questions $30-32.$

Dronz Delivery Services, Inc., $($DDS$)$runs a well$-$established delivery service that is used by several large mail$-$order companies and grocery stores. Following an initial rapid growth after startup, the firm$$s business eventually slowed down as a result of a similar decline in the businesses of its partners. During the expansion stage, the company had acquired some high$-$tech delivery equipment to support its expanded business operations. The acquisition had been funded by the Lachine Commercial Bank $($The Bank$).$The Bank had issued a $10-$year $10\%$note at par for $$4,320,000.$

In addition, the company further owed the Bank $$432,000$for past interest. Since the loan was coming due on January $1,2020,$DDS approached the Bank for concessions to settle its debt.

The two parties finally arrived at an agreement on the terms for a final settlement. On January $1,2020,$DDS would pay a cash amount of $$630,000$and accept a $4\%6-$year note for $$4,200,000$agreed to in a final settlement plan. Interest on the revised note is payable annually on December $31.$The market rate on January $1,2020,$was $6\%.$Both parties have adopted ASPE.

Question $32$:

For this question, assume that the renegotiated terms resulted in a settlement. DDS and BANK will record in their respective books of accounts on January $1,2020,$as follows $[$DDS: $ Loss or Gain; BANK: $ Loss or Gain$]$

a$.$DDS: NO LOSS or GAIN, $$0$; BANK: NO LOSS or GAIN, $$0$

b$.$DDS: GAIN, $$120,000$; BANK: LOSS, $$120,000$

c$.$DDS: GAIN, $$335,058$; BANK: LOSS, $$1,019,542$

d$.$DDS: GAIN, $$335,058$; BANK: LOSS, $$335,058$

e$.$None of the above answers.