D is corrent. On 5/1/Y1 E & S recorded the land purchased at a cost of $500,000.| Land | 500,000 | | | Cash | | 100,000 | | Note payable | | 400,000 |
The three payments made would result in debits to note payable totaling $90,000 ($179,000 payments – $89,000 interest), bringing the balance in that account down to $310,000 ($400,000 – $90,000). Since the land transferred to settle the debt had a fair value of approximately $310,000, there is no gain on restructure. There is, however, a loss on transfer of land of $190,000, since the FV of the land is less than its carrying amount ($500,000 – $310,000).| Loss on transfer of land | 190,000 | | | Note payable | 310,000 | | | Land | | 500,000 |
A is incorrect. On 5/1/Y1 E & S recorded the land purchased at a cost of $500,000.| Land | 500,000 | | | Cash | | 100,000 | | Note payable | | 400,000 |
The three payments made would result in debits to note payable totaling $90,000 ($179,000 payments – $89,000 interest), bringing the balance in that account down to $310,000 ($400,000 – $90,000). Since the land transferred to settle the debt had a fair value of approximately $310,000, there is no gain on restructure. There is, however, a loss on transfer of land of $190,000, since the FV of the land is less than its carrying amount ($500,000 – $310,000).| Loss on transfer of land | 190,000 | | | Note payable | 310,000 | | | Land | | 500,000 |
B is incorrect. On 5/1/Y1 E & S recorded the land purchased at a cost of $500,000.| Land | 500,000 | | | Cash | | 100,000 | | Note payable | | 400,000 |
The three payments made would result in debits to note payable totaling $90,000 ($179,000 payments – $89,000 interest), bringing the balance in that account down to $310,000 ($400,000 – $90,000). Since the land transferred to settle the debt had a fair value of approximately $310,000, there is no gain on restructure. There is, however, a loss on transfer of land of $190,000, since the FV of the land is less than its carrying amount ($500,000 – $310,000).| Loss on transfer of land | 190,000 | | | Note payable | 310,000 | | | Land | | 500,000 |
C is incorrect. On 5/1/Y1 E & S recorded the land purchased at a cost of $500,000.| Land | 500,000 | | | Cash | | 100,000 | | Note payable | | 400,000 |
The three payments made would result in debits to note payable totaling $90,000 ($179,000 payments – $89,000 interest), bringing the balance in that account down to $310,000 ($400,000 – $90,000). Since the land transferred to settle the debt had a fair value of approximately $310,000, there is no gain on restructure. There is, however, a loss on transfer of land of $190,000, since the FV of the land is less than its carrying amount ($500,000 – $310,000).| Loss on transfer of land | 190,000 | | | Note payable | 310,000 | | | Land | | 500,000 |
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