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, Shamrock's 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 Receivable

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)