Pearl Co. owes $199,800to Martinez Inc. The debt is a 10-year, 11% note. Because Pearl Co. is in financial trouble, Martinez Inc. agrees to accept some land and cancel the entire debt. The property has a book value of $95,600and a fair value of $152,500.

(a) Showthe journal entry on Pearl's books for debt restructure.

(b) Showthe journal entry on Martinez's books for debt restructure.

No. Account Titles and Explanation Debit Credit

(a)PearlCo.'s entry:

(a)

(b)

(c)

(d)

(b)Martinez Inc. entry:

(a)

(b)

(c)