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Brewer Inc. is owned $200,000 by Carol Co. Under a 10% note with two years remaining...

Brewer Inc. is owned $200,000 by Carol Co. Under a 10% note with two years remaining to maturity. Due to financial difficulties Carol Co. did not pay the prior year's interest. Brewer agrees to settle the receivables (and accrued interest) in exchange for a cash payment of $150,000. The Journal entry that Brewer would make to record this transaction would include a loss on troubled debt restructuring of:

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Answer #1
General Journal
Date Accounts Titles and Explanations Debit Credit
Cash Dr. $150,000
Loss on troubled debt restructuring (plug) Dr. $70,000
           Accrued Interest Receivable ($200,000*10%) $20,000
           Note Receivable $200,000
(To record loss on troubled debt restructuring on settlement)

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