Current Attempt in Progress

Ayayai Company owes $\backslash (\backslash$$ $204,000\backslash )$ plus $\backslash (\backslash$$ $18,100\backslash )$ of accrued interest to Pina State Bank. The debt is a $10-$year, $10\backslash \%$ note. During $2025,$ Ayayai's business deteriorated due to a faltering regional economy. On December $31,2025,$ Pina State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $\backslash (\backslash$$ $388,000\backslash ),$ accumulated depreciation of $\backslash (\backslash$$ $213,400\backslash ),$ and a fair value of $\backslash$$$181,000.$

$($a$)$

Prepare journal entries for Ayayai Company and Pina State Bank to record this debt settlement. $($If no entry is required, select $"$No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually. List all debit entries before credit entries.$)$

Date Account Titles and Explanation

Debit

Credit

Ayayai Company$($Debtor$)$:

December

$31,2025$

Interest Payable

Accumulated Depreciation$-$Machinery

Machinery

Gain on Disposal of Machinery

Gain on Restructuring of Debt

Pina State Bank $($Creditor$)$:

December

$31,2025$

Machinery