Problem$-$solving question: Extinguishment of Debt $($CLO# $2)$

Burwood Company loaned $$654,000$ to Garran Company. In financial difficulty it cannot meet its loan obligations, to settle the debt, Burwood agrees to accept from Garran equipment with a fair value of $$570,000$ in full settlement of the loan obligations $($Note payable$).$ The equipment has a historical value of $$700,000$ and accumulated depreciation of $$55,000$ on the books of Garran Company.

Instructions:

a$)$ Compute the gain or loss to Garran on the Extinguishment of the debt $($illustrate$).$

b$)$ Compute the gain or loss to Garran on the Ihsposition of Equipment $($illustrate$).$

c$)$ Prepare the journal entry on Garran's books to record the settlement of this debt.

d$)$ Consider the above settlement transaction on Garran Financial statements and determine its effect $($increase$,$ decrease, or no effect$)$ on both $1)$ Operational income and, $2)$ Other Income & Expenses