Question

Exercise 14-21 (Part Level Submission) Monty Company owes $225,000 plus $20,200 of accrued interest to Flounder State Bank. The debt is a 10-year, 10% note. During 2020, Monty’s business deteriorated due to a faltering regional economy. On December 31, 2020, Flounder State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $317,000, accumulated depreciation of $174,350, and a fair value of $202,000. (a) Prepare journal entries for Monty Company and Flounder 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.) No. Date Account Titles and Explanation Debit Credit Monty Company (Debtor): 1. December 31, 2020 enter an account title to record the transaction for Monty Company (Debtor) on December 31, 2020 enter a debit amount enter a credit amount enter an account title to record the transaction for Monty Company (Debtor) on December 31, 2020 enter a debit amount enter a credit amount enter an account title to record the transaction for Monty Company (Debtor) on December 31, 2020 enter a debit amount enter a credit amount enter an account title to record the transaction for Monty Company (Debtor) on December 31, 2020 enter a debit amount enter a credit amount enter an account title to record the transaction for Monty Company (Debtor) on December 31, 2020 enter a debit amount enter a credit amount enter an account title to record the transaction for Monty Company (Debtor) on December 31, 2020 enter a debit amount enter a credit amount Flounder State Bank (Creditor): 2. December 31, 2020 enter an account title to record the transaction for Flounder State Bank (Creditor) on December 31, 2020 enter a debit amount enter a credit amount enter an account title to record the transaction for Flounder State Bank (Creditor) on December 31, 2020 enter a debit amount enter a credit amount enter an account title to record the transaction for Flounder State Bank (Creditor) on December 31, 2020 enter a debit amount enter a credit amount enter an account title to record the transaction for Flounder State Bank (Creditor) on December 31, 2020 enter a debit amount enter a credit amount SHOW LIST OF ACCOUNTS LINK TO TEXT Attempts: 0 of 3 used SAVE FOR LATER SUBMIT ANSWER (b) The parts of this question must be completed in order. This part will be available when you complete the part above. (c) The parts of this question must be completed in order. This part will be available when you complete the part above.

Answer 1

Requirement A-1: Prepare the following journal entry in the books of debtor for the settlement of debt

Date	Account Title and Explanation	Debit	Credit
Dec 31	Notes Payable	$225,000
2020	Interest Payable	$20,200
	Accumulated Depreciation - Machinery	$174,350
	Machinery		$317,000
	Gain on Sale of Machinery		$59,350
	Gain on Restructuring of Debt		$43,200
	To record settlement of debt

Note Compute gain sale of machinery as follows

Particulars	Amount	Amount
Fair Value of Machinery		$202,000
Deduct: Cost of Machinery	$317,000
Less: Accumulated Depreciation - Machinery	($174,350)	$142,650
Gain on Sale of Machinery		$59,350

Compute gain on restructuring of debt as follows

Particulars	Amount
Notes Payable	$225,000
Add: Interest Payable	$20,200
Deduct: Fair Value of Machinery	($202,000)
Gain on Restructuring of Debt	$43,200

Requirement A-2: Prepare the following journal entry in the books of creditor for the settlement of notes receivable

Date	Account Title and Explanation	Debit	Credit
Dec 31	Machinery	$202,000
2020	Allowance for Doubtful Accounts	$43,200
	Notes Receivable		$225,000
	Interest Receivable		$20,200
	To record settlement of notes receivable

Notes: Compute allowance for doubtful accounts as follows

Particulars	Amount
Notes Receivable	$225,000
Add: Interest Receivable	$20,200
Deduct: Fair Value of Machinery Received	($202,000)
Allowance for Doubtful Accounts	$43,200