Larkspur Co. owes $202,500 to Cullumber Inc. The debt is a 10-year, 11% note. Because Larkspur Co. is in financial trouble, Cullumber Inc. agrees to accept some land and cancel the entire debt. The property has a book value of $92,800 and a fair value of $146,600. (a) Prepare the journal entry on Larkspur’s books for debt restructure. (b) Prepare the journal entry on Cullumber’s books for debt restructure.
Larkspur Co. owes $202,500 to Cullumber Inc. The debt is a 10-year, 11% note. Because Larkspur Co. is in financial trouble, Cullumber Inc. agrees to accept some land and cancel the entire debt. The property has a book value of $92,800 and a fair value of $146,600. (a) Prepare the journal entry on Larkspur’s books for debt restructure. (b) Prepare the journal entry on Cullumber’s books for debt restructure.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Larkspur Co. owes $202,500 to Cullumber Inc. The debt is a 10-year, 11% note. Because Larkspur Co. is in financial trouble, Cullumber Inc. agrees to accept some land and cancel the entire debt. The property has a book value of $92,800 and a fair value of $146,600.
| (a) | Prepare the |
|
| (b) | Prepare the journal entry on Cullumber’s books for debt restructure. |
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Transcribed Image Text:Larkspur Co. owes $202,500 to Cullumber Inc. The debt is a 10-year, 11% note. Because Larkspur Co. is in financial trouble,
Cullumber Inc. agrees to accept some land and cancel the entire debt. The property has a book value of $92,800 and a fair value of
$146,600.
(a)
Prepare the journal entry on Larkspur's books for debt restructure.
(b)
Prepare the journal entry on Cullumber's books for debt restructure.
(If no entry is required, select "No Entry" for the account titles and enter O 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) Larkspur Co.'s entry:
(b)
Cullumber Inc. entry:
Expert Solution
Step 1
Gain on Land Disposition = fair value - book value
= $146,600 - $92,800
= $53,800
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