During 2018 belair company was encountering financial difficulties and seemed likely to default on a $600,000, 10%, four-year note dated january 1, 2016, payable to second bank. interest was last paid on december 31, 2017. on december 31, 2018, second bank accepted $500,000 in settlement of the note. ignoring income taxes, what amount should belair report as a gain from the debt restructuring in its 2018 income statement?

gain from the debt restructuring = $160,000

Explanation:

given data

principal = $600,000

rate = 10%

settlement = $500,000

to find out

gain from the debt restructuring in  income statement

solution

we get here owed a total that is

owed a total = Principal + Unpaid interest    1

put here value

owed a total = $600,000 + $60,000

owed a total = $660,000

and

gain from the debt restructuring is here as

gain from the debt restructuring = owed a total - settled   2

gain from the debt restructuring = $660,000 - $500,000

gain from the debt restructuring = $160,000

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