Problem 01: The following information pertains to the transfer of real estate pursuant to a debt

restructuring by Kneeler Company to Mane Company in a full liquidation of Kneeler’s Liability to

Mane:
Carrying Amount of Liability Liquidated 1,500,000
Carrying amount of real estate transferred 1,000,000
Fair Value of real estate transferred 1,200,000
What amount of pretax gain should Kneeler report as a component of income from continuing
operations? 300, 000
Liability 1, 500, 0000
Gain on transferred(1.2M - 1M) 200, 000
Real estate 1, 000, 000
Gain on restructuring 300, 000

Problem 02: Versatile Company after having experienced financial difficulties in 2013,
negotiated with a major creditor and arrived at an agreement to restructure a note payable on
December 31,2013. The creditor was owed principal of P3,600,000 and interest of P400,000 but
agreed to accept equipment worth P700,000 and note receivable from a Versatile Company’s
customer with a carrying amount of P2,700,000. The equipment had an original cost of
P900,000 and accumulated depreciation of P300,000. What amount should be recognized as
gain from debt extinguishment on December 31, 2013? 700, 000
Notes payable 3, 600, 000
Accrued interest 400, 000
Carrying amount of liability 4, 000, 000
Notes receivable (2, 700, 000)
Equipment (900k- 300K) (600, 000)
Recognized gain from debt 700, 000

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