Question

Exercise 14-21 Larkspur Company owes $222,000 plus $20,600 of accrued interest to Cullumber State Bank. The debt is a 10-year, 10% note. During 2017, Larkspur's business deteriorated due to a faltering regional economy. On December 31, 2017, Cullumber State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $344,000, accumulated depreciation of $189,200, and a fair value of $206,000. Prepare journal entries for Larkspur Company and Cullumber State Bank to record this debt settlement. (If no entry is required, select "No Entry" for the account tities and enter o for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Lark Company

Answer 1

solution 11 Journal entry in the books of Carth company as follows: Date particularz Ibebit Gredet Dec 31 2017 222000 20600 189200 Note payable Interest payable Accumulated depreciation Machene Gain on desposal of machine Gain on dibt restructuring 344000 51200 36600 18 To record the settlement note of payable] working Notes? a . computation of gain on disposal of machine : Gain on desposal = fair value (cost - Accumulated depreceation) = 206000 - ( 344000 -189200) 51200 b) Computation of gain on debt restructuring: Gaen on debt restructuring = Amount of note payable + accowed Interest - fair value of machine = 722000 + 20600 - 206000 36600 =

2) Journal entry in the books of cullumber state bank as follow : Date particulars Debit Credit Machine Dec 31 2017 206000 36600 २२२००० Allowance for doubtful . - accountę Note receivable Interest recevable (to record the settlement of Note receivable] 20600