Question

Lauder Company has found itself in financial difficulty and has decided to enter into an agreement with a creditor to transfer a piece of land to the creditor in exchange for a $200,000 note payable with $10,000 accrued interest. The land, which originally cost $100,000, has a current fair value of $150,000, but is expected to increase in value to $200,000 within the next year.

 

                A. Prepare the journal entries on Lauder Company’s books to record the transfer of the land.

               

       

B. Assuming the fair value of the land was $250,000, repeat the requirement in (A).

 

Answer 1

A.) Journal Entries in the books of lauder to record the transfer of the Land: 

Note Payable A/c Dr. $200000

Accrued Interest A/c Dr. $10000

To Land A/c $100000

To Profit And Loss A/c $110000  

(Being Creditors paid off through transfer of Land and Lauder profited $110000 because $100000 Land transferred for a Creditors of $210000).

B.) Journal Entries in the books of lauder to record the transfer of the Land (Assuming Land fair Value $250000: 

There wouldn't be a change in the entry as costing is $100000 only, fair value change doesn't make any difference.