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1. Larkspur Company owes $208,000 plus $18,700 of accrued interest to Cullumber State Bank. The debt is a 10-year, 10% note. During 2020, Larkspurs business deteriorated due to a faltering regional economy. On December 31, 2020, Cullumber State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $405,000, accumulated depreciation of $222,750, and a fair value of $187,000. Prepare journal entries for Larkspur Company and Cullumber State Bank to record this debt settlement.

Larkspur ACC. DR Cr Cullumber ACC DR CR

DEC31 2020 _______ _____ _____ DEC31 2020 _____ ____ _____

_______ _____ _____ _____ ____ _____

_______ _____ _____ _____ ____ _____

_______ _____ _____ _____ ____ _____

_______ _____ _____ _____ ____ _____

_______ _____ _____ _____ ____ _____

2. Assume that, instead of transferring the machine, Larkspur decides to grant 15,000 shares of its common stock ($10 par) which has a fair value of $187,000 in full settlement of the loan obligation. If Cullumber State Bank treats Larkspurs 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.)

Larkspur ACC. DR Cr Cullumber ACC DR CR

DEC31 2020 _______ _____ _____ DEC31 2020 _____ ____ _____

_______ _____ _____ _____ ____ _____

_______ _____ _____ _____ ____ _____

_______ _____ _____ _____ ____ _____

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