Bramble Company owes $236,000 plus $21,500 of accrued interest to Sunland State Bank. The debt is a 10-year, 10% note. During 2020, Bramble’s business deteriorated due to a faltering regional economy. On December 31, 2020, Sunland State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $383,000, accumulated depreciation of $210,650, and a fair value of $215,000.Prepare journal entries for Bramble Company and Sunland State Bank to record this debt settlement.How should Bramble report the following in its 2020 income statement?Assume that, instead of transferring the machine, Bramble decides to grant 16,000 shares of its common stock ($10 par) which has a fair value of $215,000 in full settlement of the loan obligation. If Sunland State Bank treats Bramble’s stock as a trading investment, prepare the entries to record the transaction for both parties.

Question
Asked Nov 28, 2019
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Bramble Company owes $236,000 plus $21,500 of accrued interest to Sunland State Bank. The debt is a 10-year, 10% note. During 2020, Bramble’s business deteriorated due to a faltering regional economy. On December 31, 2020, Sunland State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $383,000, accumulated depreciation of $210,650, and a fair value of $215,000.

Prepare journal entries for Bramble Company and Sunland State Bank to record this debt settlement.

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

Assume that, instead of transferring the machine, Bramble decides to grant 16,000 shares of its common stock ($10 par) which has a fair value of $215,000 in full settlement of the loan obligation. If Sunland State Bank treats Bramble’s stock as a trading investment, prepare the entries to record the transaction for both parties.

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Expert Answer

Step 1

a. Prepare journal entries for Bramble Company and Sunland State Bank to record this debt settlement:

For debtor company (Bramble Company):

Post
Credit
Debit (S)
Account Titles and Description
Date
(S)
Ref.
Notes payable
$236,000
Interest payable
Accumulated depreciation
$21,600
$210,650
Machine
$383,000
Gain on disposition on machine
($215,000- ($383,000-$210,650))
Gain on debt restructuring
(($236,000+$21,600)-$215,000)
$42,650
42,600
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Post Credit Debit (S) Account Titles and Description Date (S) Ref. Notes payable $236,000 Interest payable Accumulated depreciation $21,600 $210,650 Machine $383,000 Gain on disposition on machine ($215,000- ($383,000-$210,650)) Gain on debt restructuring (($236,000+$21,600)-$215,000) $42,650 42,600

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Step 2

For creditor company (Sunland State Bank):

Post
Credit
Debit (S)
Account Titles and Description
Date
(S)
Ref.
Machine
$215,000
$42,600
Allowance for doubtful accounts
Note receivable
$236,000
Interest receivable
$21,600
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Image Transcriptionclose

Post Credit Debit (S) Account Titles and Description Date (S) Ref. Machine $215,000 $42,600 Allowance for doubtful accounts Note receivable $236,000 Interest receivable $21,600

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Step 3

b. Indicate the way in which Bramble should report the following in its 2020 income statement:

Gain on Machine Disposition and the ...

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