Extraordinary and Unusual Items, Question # 845
NuCorp. agreed to give Rand Co. a machine in full settlement of a note payable to Rand. The machine's original cost was $140,000. The note's face amount was $110,000. On the date of the agreement:
the note's carrying amount was $105,000, and its present value was $96,000.
the machine's carrying amount was $109,000, and its fair value was $96,000.
Assuming that this trade was made as part of troubled debt restructuring, what amount of gains/losses should NuCorp. recognize, and how should these be classified in its income statement?
A.
Extraordinary gain/loss: $(4,000); Other gain/loss: $0
B.
Extraordinary gain/loss: $9,000; Other gain/loss: $(13,000)
C.
Extraordinary gain/loss: $9,000; Other gain/loss: $(4,000)
D.
Extraordinary gain/loss: $0; Other gain/loss: $(4,000)
Extraordinary and Unusual Items, Question # 846
On October 15, 20X1, Kam Corp. informed Finn Co. that Kam would be unable to repay its $100,000 note due on October 31 to Finn. Finn agreed to accept title to Kam's computer equipment in full settlement of the note. The equipment's carrying value was $80,000 and its fair value was $75,000. Kam's tax rate is 30%. What amounts should Kam report as ordinary gain/loss and extraordinary gain for the year ended September 31, 20X2?
A.
Ordinary gain/loss: $(20,000); Extraordinary gain/loss: $0
B.
Ordinary gain/loss: $(5,000); Extraordinary gain/loss: $25,000
C.
Ordinary gain/loss: $0; Extraordinary gain/loss: $20,000
Correct D.
Ordinary gain/loss: $20,000; Extraordinary gain/loss: $0
.