Problem - Recording troubled debt settlement

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Problem - Recording troubled debt settlement

Smithfield Farms purchased a combine from John Deere for $175,000 on January 2, 2017. Smithfield paid $25,000 in cash and signed an installment note calling for five annual payments of $39,569.58 beginning on December 31, 2017. Deere based the payments on a 10% rate of interest. Smithfield made the first payment, but a failed harvest in 2018 left it unable to make the upcoming payment. Deere agreed to repossess the combine, which had a market value of $132,000 on December 31, 2018, and cancel the note. Deere accrued interest on the loan for 2018 prior to canceling the note.

Required - Prepare the journal entry John Deere would make on December 31, 2018, to record the settlement.

Reference no: EM132649163

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