Exercise 14-21 Marigold Company owes $185,000 plus $16,900 of accrued interest t
ID: 2589087 • Letter: E
Question
Exercise 14-21
Marigold Company owes $185,000 plus $16,900 of accrued interest to Swifty State Bank. The debt is a 10-year, 10% note. During 2017, Marigold’s business deteriorated due to a faltering regional economy. On December 31, 2017, Swifty State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $364,000, accumulated depreciation of $200,200, and a fair value of $169,000.
No.
Date
Account Titles and Explanation
Debit
Credit
Marigold Company (Debtor):
December 31, 2017
Swifty State Bank (Creditor):
December 31, 2017
SHOW LIST OF ACCOUNTS
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SHOW LIST OF ACCOUNTS
LINK TO TEXT
No.
Date
Account Titles and Explanation
Debit
Credit
Marigold Company (Debtor):
December 31, 2017
Swifty State Bank (Creditor):
December 31, 2017
Exercise 14-21
Marigold Company owes $185,000 plus $16,900 of accrued interest to Swifty State Bank. The debt is a 10-year, 10% note. During 2017, Marigold’s business deteriorated due to a faltering regional economy. On December 31, 2017, Swifty State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $364,000, accumulated depreciation of $200,200, and a fair value of $169,000.
Explanation / Answer
When machine is taken by way of debt settlement
Books of Swift State Bank :-
Debit Credit
Machine 1,69,000
Bad debts 32,900
Marigold 201,900
(machine taken from marigold in lieu of debt at fair value and balance written off to bad debts)
Books of Marigold
Swift State Bank 201,900
Machinery 163,800
Profit on sale of machinery 5,200
Profit & loss a/c 32,900
(entry on settlement of debt in books of Marigold by way of transfer of machine)
The following will be reported in income statement of Marigold :-
Gain on disposition of new machine =169000-(364000-200200)=5,200
Gain on restructuring of debt=(185000+16900)-169000
=32,900
When Shares are transferred instead of machine :-
Books of Swifty State Bank:
Debit Credit
Investment in shares 169,000
Bad debts 32,900
Marigold 201,900
(Shares of 169,000 accepted from marigold in lieu of outstanding debt)
Books of Marigold
Swifty State Bank 201,900
Share Capital 160,000
Share premium 9,000
Profit & Loss 32,900
(Shares issued to Swifty bank by way of debt settlement)
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