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An entity has a US $100,000 liability on the books. In 12 months, US $110.000 will be due including 10% interest. The entity negotiates settlement of the debt today by exchanging customer receivables with a carrying amount of US $90,000. What is the journal entry today?
A. Liability US $100.000 Receivables US $99.000 Gain 1.000
B. Liability US $110.000 Receivables US $99.000 Gain 11.000
C. Liability US $110.000 Receivables US $90,000 Gain 20,000
D. Liability US $100,000 Receivables US $90,000 Gain 10.000
Answer: D
Explanation:
An entity may derecognize a financial liability when it is extinguished. This condition is met when the debtor discharges the debt by paying the creditor, such as with cash other financial assets receivables, goods, or services. Consequently, the liability should be debited for its US $100.000 balance Receivables with a US $90.000 balance are given up so that account should be credited. The difference is again.
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