Answer:
A. Strickland Company (DEBTOR)
Dr Note Payable200,000
Dr Interest Payable18,000
Dr Accumulated Depreciation-Machine221,000
Cr Machine390,000
Cr Gain on Disposition of Machine 11,000
Cr Gain on Debt Restructuring 38,000
Moran State Bank (CREDITOR)
Dr Machine180,000
Dr Allowance for Doubtful Accounts38,000
Cr Note Receivable200,000
Cr Interest Receivable18,000
B. Based on the information given they should report both the gain or loss on the disposition of machine as well as on restructuring of debt as ordinary gain in its 2017 income statement
C. Strickland Company (DEBTOR)
Dr Note Payable200,000
Dr Interest Payable18,000
Cr Common Stock150,000
Cr Additional Paid-in Capital 30,000
Cr Gain on Debt Restructuring38,000
Moran State Bank (CREDITOR )
Dr Investment 180,000
Dr Allowance for Doubtful Accounts38,000
Cr Note Receivable200,000
Cr Interest Receivable18,000
Explanation:
(a)Preparation of the journal entries .
Strickland Company (DEBTOR)
Dr Note Payable200,000
Dr Interest Payable18,000
Dr Accumulated Depreciation-Machine221,000
Cr Machine390,000
Cr Gain on Disposition of Machine 11,000
[$180,000 – ($390,000 – $221,000) ]
Cr Gain on Debt Restructuring 38,000
[($200,000 + $18,000) – $180,000]
Moran State Bank (CREDITOR)
Dr Machine180,000
Dr Allowance for Doubtful Accounts38,000
Cr Note Receivable200,000
Cr Interest Receivable18,000
(b) Based on the information given they should report both the gain or loss on the disposition of machine as well as on restructuring of debt as ordinary gain in its 2017 income statement
(c)Preparation of the entries to record the transaction for both parties.
Strickland Company (DEBTOR)
Dr Note Payable200,000
Dr Interest Payable18,000
Cr Common Stock150,000
Cr Additional Paid-in Capital 30,000
Cr Gain on Debt Restructuring38,000
[($200,000 + $18,000) – $180,000]
Moran State Bank (CREDITOR )
Dr Investment 180,000
Dr Allowance for Doubtful Accounts38,000
[($200,000 + $18,000) – $180,000]
Cr Note Receivable200,000
Cr Interest Receivable18,000
