Accounting for a Troubled Debt Restructuring
Ludwig, Inc., which owes Giffin Co. $2,400,000 in notes payable, is in financial difficulty. To eliminate the debt, Giffin agrees to accept from Ludwig land having a fair value of $1,830,000 and a recorded cost of $1,350,000.
Required: Show computation and details.
Problem 1: Compute the amount of gain or loss to Ludwig, Inc. on the transfer (disposition) of the land.
Problem 2: Compute the amount of gain or loss to Ludwig, Inc. on the restructuring of the debt.
Problem 3: Prepare the journal entry on Ludwig's books to record the restructuring of this debt.
Problem 4: Compute the gain or loss to Giffin Co. from restructuring of its receivable from Ludwig.
Problem 5: Prepare the journal entry on Giffin's books to record the restructuring of this receivable.