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Prepare journal entries for Oriole Company

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Question - Oriole Company owes $199,000 plus $17,800 of accrued interest to Waterway State Bank. The debt is a 10-year, 10% note. During 2017, Oriole's business deteriorated due to a faltering regional economy. On December 31, 2017, Waterway State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $381,000, accumulated depreciation of $209,550, and a fair value of $178,000.

Prepare journal entries for Oriole Company and Waterway State Bank to record this debt settlement.

How should Oriole report the following in its 2017 income statement?

1. Gain or loss on the disposition of machine

2. Gain or loss on restructuring of debt

Assume that, instead of transferring the machine, Oriole decides to grant 12,000 shares of its common stock ($10 par) which has a fair value of $178,000 in full settlement of the loan obligation. If Waterway State Bank treats Oriole's stock as a trading investment, prepare the entries to record the transaction for both parties.

Reference no: EM132480390

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