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Prepare journal entry on the book of quest company to record

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Quest Company is threatened with bankruptcy due to the inability to meet interest payments and fund requirements to retire P5,000,000 note payable with accrued interest payable of P400,000.

  • Th entity has entered into an agreement with the creditor to exchange equity instruments for the financial liability.
  • The terms of the exchange are 300,000 ordinary shares with P5 par value and P10 market value, and 25,000 preference shares with P10 par value and P60 market value. The fair value of the liability is P4,800,000.

Required:

-problem 1: Prepare journal entry on the books of Quest Company to record the settlement of the note payable:

1. If the fair value of the equity instrument is used.

2. If the fair value of the liability is used.

3. If the carrying amount of the financial liability is used.

Reference no: EM132785458

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