Question

Exercise 14-21 Metlock Company owes $221,000 plus $20,100 of accrued interest to Bonita State Bank. The debt is a 10-year, 10% note. During 2020, Metlock's business deteriorated due to a faltering regional economy. On December 31, 2020, Bonita State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $402,000, accumulated depreciation of $221,100, and a fair value of $ 201,000. Prepare journal entries for Metlock Company and Bonita State Bank to record this debt settlement. (If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) No. Date Debit Credit Account Titles and Explanation Metlock Company_(Debtor): 1. December 31, 2020 Bonita State Bank (Creditor): 2. December 31, 2020

Answer 1

solution Debit Credit 221000 2010 Date Account Titles Metlock Company (Debtor): Dec 31,20 Notes payable (Dr) Interest payable (Dr) Accumulated Depreciation- 221100 machine (or Machine 402000 Gaen on Disposition of machine 20100 Garn on debt Restructuring L10100 Wo Notes: Gain on Dispose Hion of Machine - 201000-1402000 – 221100] = 201000 -180900 = 20100 Gain on Debt Restructuring = [ 271000 + 20100]- polooo = 40100 Dec 31, 20 201000 Bonita State Bank (creditor) Machine (Dr) Allowance for doubtful accounts (Ar) 40100 Notes Receivable Interest Receivable 221000 20100

Garn on Machine Disposition and should be reported as ordinary statement. gain on debt restructuring gain in the Income Date Gedit Dec 31,20 221000 20100 140000 61000 Account titles Debit Metock Company (Debtor) Notes payable (Ar) Interest payable (Dr) Common stock Additional paid in capital Gain on debt Restructuring Bonita State Bank (Creditor) Investment Com Allowance for doubtful accounts (Ar) 40100 Notes Receivable Interest receivable 40100 Dec 31, 20 201ooo 221000 20100