How should Sage report the gain or loss on disposal

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Reference no: EM132613423

Question - Sage Inc. owes Hopper Financing Corp $375,000 plus $7,500 of accrued interest. The debt is a 7 year, 8% note. During 2020, Sage's business took a downturn due to a decline in the demand for their products. On December 31, 2020, Hopper Financing agrees to accept a used manufacturing machine and cancel the entire debt. The machine has an original cost $760,000, had accumulated depreciation of $438,000 on the books of Sage. The fair value of the machine is $340,000. Hopper Financing estimates is will cost an additional $26,700 to dispose of the machine.

Instructions -

1. Prepare the journal entries for Sage Inc and Hopper Financing to record the debt settlement.

2. How should Sage report the gain or loss on disposal of the machine on the restructuring of debt in its 2020 income statement?

Reference no: EM132613423

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