USA Which account? Loan paying off another loan...

[paul heras]

Question: My boss had several equipment loans that are in various states of being paid off. He recently got a bank loan to pay off all the smaller equipment loans (financed through other institutions). My question is this rounding money amounts off:
"Excavator" loan was originally entered into QB for $50,000 on day 1. Making payments, it came down to $15,000 owed. We got a payoff letter which said "the payoff is $10,000" so the new bank paid it for us zeroing it out. So, I enter into the journal entry that NEW loan paid the $10,000, however, QuickBooks naturally still now shows that the amount remaining to be paid is $5,000. We obviously don't owe $5,000 because we paid it off early. How do I get rid of the $5,000 to zero the QB account out? What account does it go under? Retained earnings??? Do I create a new category? It's not really interest because we never paid it...it's not really income because we never took money in. I'm confused. Please help!

 

[DrStrangeLove]

DR Loans Payable......................................15,000
CR Cash.......................................................(10,000)
CR Gain on extinguishment of debt..........(5,000)

 

[paul heras]

DR Loans Payable......................................15,000
CR Cash.......................................................(10,000)
CR Gain on extinguishment of debt..........(5,000)

Thank you! So much! I had to make a new account for "Gain of extinguishment of debt". I assume the category would be "other income"?

 

[DrStrangeLove]

I believe so, yes. It goes in the income from continuing operations section, if I recall correctly, after operating income.

Someone please correct me if I'm wrong on that.