7.

Crane Company owes $236,000 plus $21,500 of accrued interest to Cheyenne State Bank. The debt is a 10 -year, 10% note. During 2025, Crane's business deteriorated due to a faltering regional economy. On December 31, 2025, Cheyenne 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. (a) Prepare journal entries for Crane Company and Cheyenne 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 the amount is entered. Do not indent manually. List all debit entries before credit entries.) How should Crane report the following in its 2025 income statement? 1. Gain or loss on the disposition of machine 2. Gain or loss on restructuring of debt Ordinary Gain Ordinary Income Ordinary Loss