On January 1, 2014, Deal Mart owed Money Bank $1,600,000, under an 8% note with
three years remaining to maturity. Due to financial difficulties, Deal Mart was unable to
pay the previous years interest. Money Bank agreed to settle Deal Marts debt in
exchange for land having a fair market value of $1,310,000. Deal Mart purchased the
land in 2003 for $1,000,000.1) Required:
Prepare the journal entries to record the restructuring of the debt by Deal Mart.
2) Define the controlling interest in consolidated net income using the t-account or
analytical approach.
3) A disbursement by the general fund to another fund may be recorded as a receivable,
an expenditure, or a fund transfer. Explain the circum-stances circumstances that would
result in each of these different treatments.
4) Distinguish between an appropriation, an en-cumbrance encumbrance, an
expenditure, and a disbursement.
5) Why is it often necessary to prepare separate financial statements for each legal
entity in a consolidated group even though consolidated statements provide a better
economic picture of the combined activities?