Question

Marin Company owes $225,000 plus $20,200 of accrued interest to Headland State Bank. The debt is a 10-year, 10% note. During 2020, Marin’s business deteriorated due to a faltering regional economy. On December 31, 2020, Headland 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.

Prepare journal entries for Marin Company and Headland 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
		Marin Company (Debtor):
1.	December 31, 2020	enter an account title to record the transaction for Marin Company (Debtor) on December 31, 2020	enter a debit amount	enter a credit amount
		enter an account title to record the transaction for Marin Company (Debtor) on December 31, 2020	enter a debit amount	enter a credit amount
		enter an account title to record the transaction for Marin Company (Debtor) on December 31, 2020	enter a debit amount	enter a credit amount
		enter an account title to record the transaction for Marin Company (Debtor) on December 31, 2020	enter a debit amount	enter a credit amount
		enter an account title to record the transaction for Marin Company (Debtor) on December 31, 2020	enter a debit amount	enter a credit amount
		enter an account title to record the transaction for Marin Company (Debtor) on December 31, 2020	enter a debit amount	enter a credit amount
		Headland State Bank (Creditor):
2.	December 31, 2020	enter an account title to record the transaction for Headland State Bank (Creditor) on December 31, 2020	enter a debit amount	enter a credit amount
		enter an account title to record the transaction for Headland State Bank (Creditor) on December 31, 2020	enter a debit amount	enter a credit amount
		enter an account title to record the transaction for Headland State Bank (Creditor) on December 31, 2020	enter a debit amount	enter a credit amount
		enter an account title to record the transaction for Headland State Bank (Creditor) on December 31, 2020	enter a debit amount	enter a credit amount

eTextbook and Media

List of Accounts

  

  

How should Marin report the following in its 2020 income statement?

1.		Gain or loss on the disposition of machine		select between gain and loss                                                                      Ordinary GainOrdinary ExpenseOrdinary IncomeOrdinary Loss
2.		Gain or loss on restructuring of debt		select between gain and loss                                                                      Ordinary GainOrdinary ExpenseOrdinary LossOrdinary Income

eTextbook and Media

List of Accounts

  

  

Assume that, instead of transferring the machine, Marin decides to grant 12,000 shares of its common stock ($10 par) which has a fair value of $202,000 in full settlement of the loan obligation. If Headland State Bank treats Marin’s stock as a trading investment, prepare the entries to record the transaction for both parties. (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
		Marin Company (Debtor):
1.	December 31, 2020	enter an account title to record the transaction for Marin Company (Debtor) on December 31, 2020	enter a debit amount	enter a credit amount
		enter an account title to record the transaction for Marin Company (Debtor) on December 31, 2020	enter a debit amount	enter a credit amount
		enter an account title to record the transaction for Marin Company (Debtor) on December 31, 2020	enter a debit amount	enter a credit amount
		enter an account title to record the transaction for Marin Company (Debtor) on December 31, 2020	enter a debit amount	enter a credit amount
		enter an account title to record the transaction for Marin Company (Debtor) on December 31, 2020	enter a debit amount	enter a credit amount
		Headland State Bank (Creditor):
2.	December 31, 2020	enter an account title to record the transaction for Headland State Bank (Creditor) on December 31, 2020	enter a debit amount	enter a credit amount
		enter an account title to record the transaction for Headland State Bank (Creditor) on December 31, 2020	enter a debit amount	enter a credit amount
		enter an account title to record the transaction for Headland State Bank (Creditor) on December 31, 2020	enter a debit amount	enter a credit amount
		enter an account title to record the transaction for Headland State Bank (Creditor) on December 31, 2020	enter a debit amount	enter a credit amount

Answer 1