Smithfield Farms purchased a combine from John Deere for $175,000 on January 2, 20X1. Smithfield paid $25,000 in cash and signed an installment note calling for five annual payments of $39,569.58 beginning on December 31, 20X1. Deere based the payments on a 10% rate of interest. Smithfield made the first payment, but a failed harvest in 20X2 left it unable to make the upcoming payment. Deere agreed to repossess the combine, which had a market value of $132,000 on December 31, 20X2, and cancel the note. Deere accrued interest on the loan for 20X2 prior to canceling the note.

Required:

Prepare the journal entry John Deere would make on December 31, 20X2, to record the settlement.