Question

Vaughn Company owes $176,000 plus $15,600 of accrued interest to Bramble State Bank. The debt is a 10-year, 10% note. During 2020, Vaughn’s business deteriorated due to a faltering regional economy. On December 31, 2020, Bramble State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $333,000, accumulated depreciation of $183,150, and a fair value of $156,000.

Prepare journal entries for Vaughn Company and Bramble State Bank to record this debt settlement. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

How should Vaughn report the following in its 2020 income statement?

1.		Gain or loss on the disposition of machine		select between gain and loss                                                                      Ordinary ExpenseOrdinary IncomeOrdinary GainOrdinary Loss
2.		Gain or loss on restructuring of debt

Assume that, instead of transferring the machine, Vaughn decides to grant 15,000 shares of its common stock ($10 par) which has a fair value of $156,000 in full settlement of the loan obligation. If Bramble State Bank treats Vaughn’s stock as a trading investment, prepare the entries to record the transaction for both parties. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)