Troubled Debt Restructuring

Bakert Companys $1,000,000 note payable to a private investor just matured. Interest was not paid on the note for the past three years and accrued interest now totals $300,000. Bakert is in serious financial difficulty and is unable to pay off the note. In an attempt to help the company survive, the company and the investor agree to the following:

1. Bakert transfers a parcel of vacant land to the investor in settlement of $400,000 of the total obligation. The land has a book value of $150,000, and $400,000 is a reasonable estimate of its fair value.

2. Bakert issues $300,000 par value of 5 percent preferred stock in settlement of $300,000 of the obligation.

3. The remaining balance of the total obligation is replaced by a five-year note in the principal amount of $300,000, with interest at 6 percent, payable at the end of each year.

Required

Prepare journal entries to record these arrangements for Bakert Company.

Description	Debit	Credit
AnswerCashGain on disposition of landGain on restructuringInterest expenseLoss on disposition of landNote payable and accrued interestPreferred stock	Answer	Answer
AnswerCashGain on disposition of landGain on restructuringInterest expenseLoss on disposition of landNote payable and accrued interestPreferred stock	Answer	Answer
Land	Answer	Answer
To record transfer of land in partial settlement of obligation.
AnswerCashGain on disposition of landGain on restructuringInterest expenseLoss on disposition of landNote payable and accrued interestPreferred stock	Answer	Answer
AnswerCashGain on disposition of landGain on restructuringInterest expenseLoss on disposition of landNote payable and accrued interestPreferred stock	Answer	Answer
To record issuance of stock in partial settlement of obligation.
AnswerCashGain on disposition of landGain on restructuringInterest expenseLoss on disposition of landNote payable and accrued interestPreferred stock	Answer	Answer
AnswerCashGain on disposition of landGain on restructuringInterest expenseLoss on disposition of landNote payable and accrued interestPreferred stock	Answer	Answer
To record change in total obligation.