Exercise 14-26Blossom Co. owes $193,900 to Blue Inc. The debt is a 10-year, 11% note. Because Blossom Co. is in financial trouble, Blue Inc. agrees to accept some land and cancel the entire debt. The property has a book value of $92,500 and a fair value of $127,300.(a) Prepare the journal entry on Blossom’s books for debt restructure.(b) Prepare the journal entry on Blue’s books for debt restructure.(If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)No.Account Titles and ExplanationDebitCredit(a)Blossom Co.'s entry: (b)Blue Inc. entry:

Debt restructuring refers to the process which is used by corporations facing liquidity issues or financial distress. In this process, the existing debt is refinanced in order to make it more flexible while making payments. Debt for equity is one of the types of debt restricting. In this method, the creditor agrees to cancel portion of his debt in exchange of equity.(A): Blossom’s Books No. Account Titles and Explanation Debit Credit A Notes Payable $193,900 Land $92,500 Gain on disposal of land ($127,300-$92,500) $34,800 Gain on debt restructuring ($193,900-$127,300) $66,600 (To record debt restructure) (B): Blue’s Books No. Account Titles and Explanation Debit Credit B Land $127,300 Allowance for doubtful accounts $66,600 Notes receivable $193,900 (To record debt restructure)

Answered: Exercise 14-26 Blossom Co. owes…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Exercise 14-26

Blossom Co. owes $193,900 to Blue Inc. The debt is a 10-year, 11% note. Because Blossom Co. is in financial trouble, Blue Inc. agrees to accept some land and cancel the entire debt. The property has a book value of $92,500 and a fair value of $127,300.

(a)		Prepare the journal entry on Blossom’s books for debt restructure.
(b)		Prepare the journal entry on Blue’s books for debt restructure.

(If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

No.	Account Titles and Explanation	Debit	Credit
(a)	Blossom Co.'s entry:




(b)	Blue Inc. entry:

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