Marin Company owes $225,000 plus $20,200 of accrued interest to Headland State Bank. The debt is a 10-year, 10% note. During 2020, Marins business deteriorated due to a faltering regional economy. On December 31, 2020, Headland State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $317,000, accumulated depreciation of $174,350, and a fair value of $202,000.

a) Prepare journal entries for Marin Company and Headland 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.)

b) How should Marin report the following in its 2020 income statement?

1.Gain or loss on the disposition of a machine Ordinary Gain

Ordinary Loss

Ordinary Expense

Ordinary Income

Ordinary Loss

2.Gain or loss on restructuring of debt Ordinary Gain

Ordinary Loss

Ordinary Expense

Ordinary Income

Ordinary Loss

part 2) Assume that, instead of transferring the machine, Marin decides to grant 12,000 shares of its common stock ($10 par) which has a fair value of $202,000 in full settlement of the loan obligation. If Headland State Bank treats Marins 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.)