Question

Larkspur Inc. owes Pearl Bank $205,000 plus $19,100 of accrued interest. The debt is a 10-year, 10% note. During 2020, Larkspur's business declined due to a slowing regional economy. On December 31, 2020, the bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $400.000. accumulated depreciation of $229,000, and a fair value of $185,000. The bank plans to dispose of the machine at a cost of $6,200. Both Larkspur and Pearl Bank prepare financial statements in accordance with IFRS 9. Prepare the journal entries for Larkspur Inc. and Pearl Bank to record this debt settlement. Assume Pearl had previously recognized an allowance for doubtful accounts for the impairment prior to the settlement. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry"for the account titles and enter for the amounts.) Debit Credit Date Account Titles and Explanation Larkspur Inc. Dec. 31, 2020 Pearl Bank Dec. 31, 2020

Answer 1

Answer 1.
Books of Strickland Company
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
1	Note Payable                                  Dr.	2,05,000
	Interest Payable                            Dr.	19,100
	Accumulated Dep. - Machine Dr.	2,29,000
	To Machine		4,00,000
	To Gain on Disposition of Machine		14,000	$185,000 - ($400,000 - $229,000)
	To Gain on Debt Restructuring		39,100	($205,000 + $19,100) - $185,000
Books of Moran State Bank
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
1	Machine                                            Dr.	1,85,000
	Allowance for Doubtful A/c     Dr.	39,100		($200,000 + $18,000) - $185,000
	To Notes Receivables		2,05,000
	To Interest Receivables		19,100