Swifty Corporation is indebted to Blossom under a $1020000, 11%, three-year note dated December 31, 2019. Because of Swifty's financial difficulties developing in 2021, Swifty owed accrued interest of $112200 on the note at December 31, 2021. Under a troubled debt restructuring, on December 31, 2021, Blossom agreed to settle the note and accrued interest for a tract of land having a fair value of $920000. Swifty's acquisition cost of the land is $723000.

Ignoring income taxes, on its 2021 income statement Swifty should report as a result of the troubled debt restructuring.

On its 2021 income statement Swifty should report as a result of the troubled debt restructuring...

Gain on disposal = $197,000

Restructuring gain = $212,200

Explanation:

We need to find the gain on disposal. Let's use:

Gain on disposal = fair value of land - cost of land.

Where,

Fair value = $920,000

Cost of land = $723,000

Therefore,

Gain on disposal = $920,000 - $723,000 = $197,000

Let's find the gain on restructuring.

Restructuring gain = Loan amount + Accured interest - fair value of land

Where,

Loan amount = $1,020,000

Accured interest = $112,200

Fair value of land = $920,000

Therefore,

Restructuring gain = $1,020,000 + $112,200 - $920,000 = $212,200

On its 2021 income statement Swifty should report as a result of the troubled debt restructuring...

Gain on disposal = $197,000

Restructuring gain = $212,200

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