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Exercise 14-21 Sweet Company owes $198,000 plus $17,500 of accrued interest to Pharoah State Bank. The debt is a 10-year, 10% note. During 2017, Sweets business deteriorated due to a faltering regional economy. On December 31, 2017, Pharoah State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $384,000, accumulated depreciation of $211,200, and a fair value of $175,000.

Prepare journal entries for Sweet Company and Pharoah 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 Sweet Company (Debtor): 1. December 31, 2017 Pharoah State Bank (Creditor): 2. December 31, 2017 Show List of Accounts Link to Text

How should Sweet 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

Show List of Accounts Link to Text

Assume that, instead of transferring the machine, Sweet decides to grant 17,000 shares of its common stock ($10 par) which has a fair value of $175,000 in full settlement of the loan obligation. If Pharoah State Bank treats Sweets 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 Sweet Company (Debtor): 1. December 31, 2017 Pharoah State Bank (Creditor): 2. December 31, 2017 Click if you would like to Show Work for this question:

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