Metlock Company owes $208,000 plus $18,700 of accrued interest to Bonita State B
ID: 2409806 • Letter: M
Question
Metlock Company owes $208,000 plus $18,700 of accrued interest to Bonita State Bank. The debt is a 10-year, 10% note. During 2017, Metlock’s business deteriorated due to a faltering regional economy. On December 31, 2017, Bonita State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $405,000, accumulated depreciation of $222,750, and a fair value of $187,000.
Prepare journal entries for Metlock Company and Bonita 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
Metlock Company (Debtor):
December 31, 2017
Bonita State Bank (Creditor):
December 31, 2017
How should Metlock report the following in its 2017 income statement?
Assume that, instead of transferring the machine, Metlock decides to grant 15,000 shares of its common stock ($10 par) which has a fair value of $187,000 in full settlement of the loan obligation. If Bonita State Bank treats Metlock’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
Metlock Company (Debtor):
December 31, 2017
Bonita State Bank (Creditor):
December 31, 2017
No.
Date
Account Titles and Explanation
Debit
Credit
Metlock Company (Debtor):
1.December 31, 2017
Bonita State Bank (Creditor):
2.December 31, 2017
Explanation / Answer
Working:
Date Account title Debit Credit Metlock Company Dec.31,2017 Bank Loan payable 208000 Interest Payable 18700 Accumulated Depreciation 222750 Machine 405000 Gain on retrement of Debt 39700 Gain on disposal of machine 4750 Bonita State Bank Dec.31,2017 Machine 187000 Loss on retirement of loan to Metlock 39750 Loan to Metlock co. 208000 Interest Receivable 18750