McFly Corporation owes $204,500 plus $19,340 of accrued interest to Cub State Bank. The debt is a 10-year, 10% note. During 2018, McFlys business deteriorated due to a faltering regional economy. On December 31, 2018, Cub State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $398,400, accumulated depreciation of $219,120, and a fair value of $193,400. Instructions:

(a) Prepare journal entries for McFly Corporation and Cub State Bank to record this debt settlement.

(b) Assume that, instead of transferring the machine, McFly decides to grant 11,300 shares of its common stock ($10 par) which has a fair value of $193,400 in full settlement of the loan obligation. Prepare the entries to record the transaction for both parties.