1. Boswel Company owes $200,000 plus $18,000 of accrued interest to Grey Bank. The debt is a 10-year, 10% note. During 2019, Boswels business deteriorated due to a faltering regional economy. On December 31, 2019, Grey Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $390,000, accumulated depreciation of $221,000, and a fair value of $180,000.

Instructions

(a) Prepare journal entries for Boswel Company to record this debt settlement. (4 marks)

(b) How should Boswel report the gain or loss on the disposition of machine and on restructuring of debt in its 2019 income statement? (1 mark)

(c) Assume that, instead of transferring the machine, Boswel decides to grant 15,000 of its ordinary shares ($10 par), which have a fair value of $180,000 in full settlement of the loan obligation. Prepare the entries to record the transaction.