Answer:
Southfield Company
Prior to the transfer, Southfield should credit
gain on disposal of land for $1 million.
Explanation:
a) Data and Calculations:
Historical cost of land = $500,000
Fair value of land = $1.2 million
Outstanding loan principal plus accrued interest = $1.5 million
There is a gain on disposal of $1 million ($1.5 million - $500,000)
b) With the transfer of resources in full settlement, the land account will be credited with $1.5 million while the Loan accounts are debited with $1.5 million.
This entry in the land account will give rise to a net credit balance of $1 million, which the gain on disposal, debited to the land account.
Therefore, the Gain on Disposal of Land will be credited with $1.5 million as a corresponding entry.
