Five years ago, Macro Arco Corporation (MAC) borrowed $12 million from Friendly Neighbor Bank (FNB) to finance the purchase of a new factory to be able to meet an expected increase in demand for its products. The expected increase in demand never materialized, and due to a downturn in the economy, MAC is no longer able to make its monthly payments to FNB. After a lengthy negotiation process, which cost MAC $50,000 in legal fees, MAC will transfer the factory to the bank, along with a cash payment of $1.5 million. This will discharge MAC from the debt. The carrying amount and fair value of the factory is $8 million, and the current balance due to the bank is $10 million.
Required:
Prepare the journal entries to be recorded by MAC and FNB related to this troubled debt restructuring.