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Bezzdna
20 days ago
11

Guido Properties owes First State Bank $60 million under a 7% note with two years remaining to maturity. Due to financial diffic

ulties of Guido, the previous year’s interest ($4.2 million) was not received. The bank agrees to settle the note receivable and accrued interest receivable in exchange for land having a fair value of $44 million and a book value of $ 32 million.
Required:

Prepare all the journal entries required for the settlement on Guido’s books.
Business
1 answer:
Nady [3.6K]20 days ago
3 0

Answer:

The necessary journal entries are included below:

Notes payable A/c Dr $60,000,000 Interest payable A/c Dr $4,200,000

        To Land A/c $32,000,000

        To Gain on land transfer $12,000,000

        To gain on debt settlement $20,200,000

(This reflects all transactions recorded, and leftover balance is credited to the gain on debt settlement)

The gain from the transfer of land is calculated as follows:

=$44 million - $32 million = $12 million

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