Grumpy Limited owes $137,300 to Bank One Inc. on a 10-year, 11% note due on December 31, 2014. The note was issued at par. Because Grumpy is in financial trouble, Bank One Inc. agrees to accept a piece of equipment (with original cost of $100,000 and carrying value of $55,000 on Grumpy's books at December 31, 2014) and cancel the entire debt. The equipment has a fair value of $82,500. Both Grumpy and Bank One prepare financial statements in accordance with IFRS.
Instructions
(a) Prepare the journal entry on Grumpy's books for the debt settlement.
(b) Prepare the journal entry on Bank One's books for the debt settlement. Assume that the impairment has already been accrued through the Allowance for Doubtful Accounts.