Use the following information for questions 44-46.
On December 31, 2020, Diaz Corp. is in financial difficulty and cannot pay a $ 900,000 note with $ 90,000 accrued interest payable to Cameron Ltd., which is now due. Cameron agrees to accept from Diaz equipment that has a fair value of $ 435,000, an original cost of $ 720,000, and accumulated depreciation of $ 345,000. Cameron also forgives the accrued interest, extends the maturity date to December 31, 2022, reduces the face amount of the note to $ 375,000, and reduces the market interest rate of 6%, with interest payable at the end of each year.
-Diaz should recognize a gain or loss on the transfer of the equipment of
A) $ 0.
B) $ 60,000 gain.
C) $ 90,000 gain.
D) $ 285,000 loss.

Question

Quizplus · Accepted Answer

The gain on the transfer of the equipment is calculated as the fair value of the equipment ($435,000) minus its carrying amount (original cost of $720,000 minus accumulated depreciation of $345,000, which equals $375,000). Therefore, the gain is $435,000 - $375,000 = $60,000.

Use the Following Information for Questions 44-46