Strickland Company owes $201,200 plus $18,250 of accrued interest to Moran State
ID: 2456821 • Letter: S
Question
Strickland Company owes $201,200 plus $18,250 of accrued interest to Moran State Bank. The debt is a 10-year, 10% note. During 2014, Strickland’s business deteriorated due to a faltering regional economy. On December 31, 2014, Moran State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $398,200, accumulated depreciation of $219,010, and a fair value of $182,500.
(a) Prepare journal entries for Strickland Company and Moran 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
Strickland Company (Debtor):
December 31, 2014
Moran State Bank (Creditor):
December 31, 2014
(b) How should Strickland report the following in its 2014 income statement?
(c) Assume that, instead of transferring the machine, Strickland decides to grant 11,400 shares of its common stock ($10 par) which has a fair value of $182,500 in full settlement of the loan obligation. If Moran State Bank treats Strickland’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
Strickland Company (Debtor):
December 31, 2014
Moran State Bank (Creditor):
December 31, 2014
No.
Date
Account Titles and Explanation
Debit
Credit
Strickland Company (Debtor):
1.December 31, 2014
Moran State Bank (Creditor):
2.December 31, 2014
Explanation / Answer
Strickland Company owes $201,200 plus $18,250 of accrued interest to Moran State