Question

Exercise 14-21 Shamrock Company owes $201,000 plus $17,900 of accrued interest to Bridgeport State Bank. The debt is a 10-year, 10% note. During 2017, Shamrocks business deteriorated due to a faltering regional economy. On December 31, 2017, Bridgeport State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $354,000, accumulated depreciation of $194,700, and a fair value of $179,000. Prepare journal entries for Shamrock Company and Bridgeport 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.) Account Titles and Explanation Shamrock Company (Debtor): No. Date Debit Credit 1. December 31, 2017 Notes Payable 201,000 17,900 194,700 Interest Payable Accumulated Depreciation-Machinery Machinery Gain on Disposal of Machin Gain on Restructuring of Debt Bridgeport State Bank (Creditor) 354,000 inery 2. December 31, 2017 Machinery Allowance for Doubtful Accounts Notes Receivable 201,000 Interest ReceivableHow should Shamrock report the following in its 2017 income statement? 1. Gain or loss on the disposition of machine Ordin 2. Gain or loss on restructuring of debt ary Gain Ordinary Gain SHOW LIST OF ACCOUNTS LINK TO TEXT Assume that, instead of transferring the machine, Shamrock decides to grant 16,000 shares of its common stock ($10 par) which has a fair value of $179,000 in full settlement of the loan obligation. If Bridgeport State Bank treats Shamrocks 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.) Account Titles and Explanation Shamrock Company (Debtor): No. Date Debit Credit 1. December 31, 2017 Notes Payable Interest Payable Common Stock Paid-in Capital in Excess of Par - Common Stock Gain on Restructuring of Debt Bridgeport State Bank (Creditor) 2. December 31, 2017 Equity Investments Allowance for Doubtful Accounts Notes Receivable Interest Receivable

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Answer #1
Shamrock Company
Shamrock Company owes $201000 plus accrued interest $17900 to Bridgeport State Bank.
The debt is 10 years 10% note
On December 31,2017, Bridgeport State Bank agrees to accept old machine and cancel the debt
Cost Accumulated Depreciation Fair Value
The Machine accepted by Bridgeport state Bank $ 3,54,000.00 $    1,94,700.00 $       1,79,000.00
Shamrock Company(Debtor)
a) Journal Entries for settlement of Debt
Date Particular Debit Credit
December 31st,2017 Note Payable(Given) $ 2,01,000.00
Interest Payable(given) $     17,900.00
Accumulated Depreciation(Given) $ 1,94,700.00
      To Machine(Given) $    3,54,000.00
*       To Gain on disposition of Equipment=(($179000-($354000-$194700)) $        19,700.00
**       To Gain on Restructuring of Debt=($201000+$17900-$179000) $        39,900.00
(Being Machinery given to Bridgeport for settlement of debt)
Gain on disposition of Equipment
* Fair Value $ 1,79,000.00
Less: WDV=(Cost-Depreciation)=($354000-$194700) $ 1,59,300.00
Gain on disposition of Equipment $     19,700.00
** Gain on Restructuring of Debt: It is the difference between fair value of payment made to legally Restructuring of debt.
Note Payable $ 2,01,000.00
Interest $     17,900.00
Total Debt $ 2,18,900.00
Less:Fair Value of Machine $ 1,79,000.00
Gain on Restructuring of Debt $     39,900.00
Bridgeport State Bank (Creditor)
Date Particular Debit Credit
Machinery $ 1,79,000.00
Allowance for doubtful accounts=($201000+$17900-$179000) $     39,900.00
     To Notes Receivable $    2,01,000.00
     To Interest Receivable $        17,900.00
(Being Machinery received at fair value for settlement of debt)
b) Under Income Statement both Gain on disposition of Equipment and Gain on Restructuring of debt reported under other income and expenses
c ) Issue of Shares against of Debt
Journal Entries
Shamrock Company(Debtor)
Date Particular Debit Credit
Notes Payable $ 2,01,000.00
Interest Payable $     17,900.00
    To Common Stock(16000 shares @$10) $    1,60,000.00
   To Share Premium(Fair Value-Common Stock par value)=($179000-$160000) $        19,000.00
   To Gain on Restructuring of Debt=($201000+$17900-$160000-$19000) $        39,900.00
(Being issue of 16000 shares @$10 par value for $179000 against of settlement of debt)
Bridgeport State Bank (Creditor)
Date Particular Debit Credit
31st Dec 2017 Equity Investment $ 1,79,000.00
Allowance for doubtful accounts $     39,900.00
     To Note Receivable $    2,01,000.00
     To Interest Receivable $        17,900.00
(Being received $16000 Shares at $179000 for settlement of debt)
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