Strickland Company owes $201,400 plus $18,870 of accrued interest to Moran State Bank. The debt is a 10-year, 10% note. During 2014, Stricklands business deteriorated due to a faltering regional economy. On December 31, 2014, Moran State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $392,200, accumulated depreciation of $215,710, and a fair value of $188,700.

(a) Prepare journal entries for Strickland Company and Moran State Bank to record this debt settlement. (b) How should Strickland report the following in its 2014 income statement? (Ordinary Loss, Ordinary Gain, Extraordinary loss, Extraordinary gain) Gain or loss on the disposition of machine Gain or loss on restructuring of debt (c) Assume that, instead of transferring the machine, Strickland decides to grant 12,400 shares of its common stock ($10 par) which has a fair value of $188,700 in full settlement of the loan obligation. If Moran State Bank treats Stricklands 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.)