Tapscott, Inc., is indebted to Bush Finance Company under a $600,000, 10%, five-year note dated January 1, 2004. Interest, payable annually on December 31, was paid on the December 31, 2004 and 2005 due dates. However, during 2005 Tapscott experienced severe financial difficulties and is likely to default on the note and interest unless some concessions are made. On December 31, 2006, Tapscott and Bush signed an agreement restructuring the debt as follows:
Interest for 2006 was reduced to $30,000 payable March 31, 2007.
Interest payments each year were reduced to $40,000 per year for 2007 and 2008.
The principal amount was reduced to $400,000.
What is the amount of gain that Tapscott should report on the debt restructure in its income statement for the year ended December 31, 2006?
- $120,000
- $150,000
- $200,000
- $230,000