Question

Exercise 14-21 Ivanhoe Company owes $179,000 plus $16,000 of accrued interest to Shamrock State Bank. The debt is a 10-year 0% no e Du ng a ra hoes business deter rated due to a faltering regional economy. On December 31, 2017, Shamrock State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $348,000, accumulated depreciation of $191,400, and a fair value of $160,000. Prepare journal entries for Ivanhoe Company and Shamrock 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 Account Titles and Explanation Ivanhoe Company (Debtor): Debit Credit 1. December 31, 2017 Shamrock State Bank (Creditor): 2. December 31, 2017

Answer 1

Answer:

Inanhoe Company
Inanhoe Company owes $179,000 plus accrued interest $16,000 to Shamrock State Bank.
The debt is 10 years 10% note
On December 31,2017, Shamrock State Bank agrees to accept old machine and cancel the debt
	Cost	Accumulated Depreciation	Fair Value
The Machine accepted by Shamrock state Bank	$ 3,48,000	$ 1,91,400	$  1,60,000

Inanhoe Company(Debtor)
a)	Journal Entries for settlement of Debt
Date	Particular	Debit($)	Credit($)
December 31st,2017	Note Payable	1,79,000
	Interest Payable	16,000
	Accumulated Depreciation	1,91,400
	To Machine		3,48,000
*	To Gain on disposition of Equipment=(($160,000-($3,48,000-$191,400))		3,400
**	To Gain on Restructuring of Debt=($179,000+$16,000-$160,000)		35,000
	(Being Machinery given to Shamrock for settlement of debt)
Shamrock State Bank (Creditor)
Date	Particular	Debit($)	Credit($)
December 31st,2017	Machinery	1,60,000
	Allowance for doubtful accounts=($179,000+$16,000-$160,000)	35,000
	To Notes Receivable		1,79,000
	To Interest Receivable		16,000
	(Being Machinery received at fair value for settlement of debt)