Post a comment as soon as possible thanks Loan forgiveness is considered to be a
ID: 2333308 • Letter: P
Question
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Loan forgiveness is considered to be a profit by the FASB and GAAP. The entry made by the accountant is incorrect because the principal bondholders have agreed to exchange only $10,000,000 of their bonds for preferred stock. The accountant should have credited $10,000,000 to preferred stock and $10,000,000 to realized gain. It would also be important that this situation be disclosed in the financial statements notes. External financial users would need to know this information when making financial decisions about the company. Considering the company is in financial difficulty, recording the entire $20,000,000 to bond liability would not provide accurate financials for external users
Explanation / Answer
Acoording to the Question the bond liability is $20000000 out of which the boldholder forgive $10,000,000 for preferred stock. for this transaction entry shoule be:-
Bond liability a/c dr 10,000,000 To Preferred Stock 10,000,000
And remaining 10,000,000 bold liability shown as the liability in the financial statement. Company also diclose in notes to account for the users of financial statement.