Eddy Co. is indebted to Cole under a P400,000, 12%, three-year note dated December 31, 2019. Because of Eddy’s financial difficulties developing in 2021, Eddy owed accrued interest of P48,000 on the note at December 31, 2021. Under a debt settlement, on December 31, 2021, Cole agreed to settle the note and accrued interest for a tract of land having a fair value of P360,000. Eddy’s acquisition cost of the land is P290,000. Ignoring income taxes, how much gain/loss on debt extinguishment is to be recognized by Eddy Co? P0 P40,000 P88,000 gain P88,000 loss
Eddy Co. is indebted to Cole under a P400,000, 12%, three-year note dated December 31, 2019. Because of Eddy’s financial difficulties developing in 2021, Eddy owed accrued interest of P48,000 on the note at December 31, 2021. Under a debt settlement, on December 31, 2021, Cole agreed to settle the note and accrued interest for a tract of land having a fair value of P360,000. Eddy’s acquisition cost of the land is P290,000. Ignoring income taxes, how much gain/loss on debt extinguishment is to be recognized by Eddy Co? P0 P40,000 P88,000 gain P88,000 loss
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Eddy Co. is indebted to Cole under a P400,000, 12%, three-year note dated
December 31, 2019. Because of Eddy’s financial difficulties developing in 2021, Eddy owed accrued interest of P48,000 on the note at December 31, 2021. Under a debt settlement, on December 31, 2021, Cole agreed to settle the note and accrued interest for a tract of land having a fair value of P360,000. Eddy’s acquisition cost of the land is P290,000. Ignoring income taxes, how much gain/loss on debt extinguishment is to be recognized by Eddy Co?
December 31, 2019. Because of Eddy’s financial difficulties developing in 2021, Eddy owed accrued interest of P48,000 on the note at December 31, 2021. Under a debt settlement, on December 31, 2021, Cole agreed to settle the note and accrued interest for a tract of land having a fair value of P360,000. Eddy’s acquisition cost of the land is P290,000. Ignoring income taxes, how much gain/loss on debt extinguishment is to be recognized by Eddy Co?
P0
P40,000
P88,000 gain
P88,000 loss
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