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

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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

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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
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