Answer:
a. Strickland Company (Debtor)
Date Account Title and Calculation Debit Credit
Notes payable $202,900
Interest payable $18,600
Accumulated depreciation (Machine) $218,689
Machine $397,600
Gain on disposition of machine $7,080
(186,000 + 397,000 - 218,680)
Gain on debt restructuring $35,500
[(202,900 + 18,600) - 186,000]
Moran State Bank (Creditor)
Date Account Title and Calculation Debit Credit
Machine $186,000
Allowance for Doubtful accounts $35,000
Notes receivable $202,900
Interest receivable $18,600
b. Gain on machine disposition and the gain on debt restructuring should be reported as an ordinary gain in the income statement.
c. Strickland Company (Debtor)
Date Account Title and explanation Debit Credit
Notes payable $202,900
Interest payable $18,600
Common stock $112,000
Additional paid-in-capital $74,000
Gain on debt restructuring $35,500
Moran State Bank (Creditor)
Date Account Title and explanation Debit Credit
Investment Trading $186,000
Allowance for Doubtful accounts $35,500
Notes receivable $202,900
Interest receivable $18,600
