On December 31, 2010, Federal Bank enters into a debt restructuring agreement with Carson Company which is experiencing financial difficulties

On December 31, 2010, Federal Bank enters into a debt restructuring agreement with Carson Company which is experiencing financial difficulties. The bank restructures a $3,000,000 note receivable by:

1. Reducing the principal obligation from $3,000,000 to $2,400,000.
2. Extending the maturity date from 12/31/10 to 12/31/13, and
3. Reducing the interest rate from 12% to 6%.
Interest has been paid up to date as of 12/31/10

Instructions
Discuss the nature of this transaction, indicating whether any gain or loss is recognized by either party and preparing any 12/31/10 journal entries that may be required by the debtor (Carson).


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Lemon Corporation enters into a merger with Lime Corporation

Lemon Corporation enters into a merger with Lime Corporation. Lemon has assets valued at $ 900,000 (basis of $ 980,000) and liabilities of $ 600,000. Lime transfers its stock for 90% of Lemon’s assets and liabilities. Lemon distributes the Lime stock and its remaining asset ( value of $ 90,000, adjusted basis of $ 80,000) subject to a liability ($ 60,000) to its shareholder, Lea, in exchange for her Lemon stock. Lea’s basis in her Lemon stock is $ 350,000. Lemon liquidates after collecting all of its stock from Lea.

a. What is the value of stock transferred from Lime to Lemon?
b. What is the amount of gain (loss) realized and recognized by Lea from the merger? What is Lea’s basis in her Lime stock?
c. What is the amount of gain (loss) realized and recognized by Lemon and Lime from the merger? What is Lime’s basis in Lemon’s assets?

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