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Prepare the pertinent journal entry for the equity swap

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Question - Sorrow Company is experiencing financial difficulty and is negotiating debt restructuring with a creditor to relieve its financial stress. Sorrow has a P2,500,000 note payable to Universal Bank. The bank accepted and equity interest in Sorrow in the form of 200,000 ordinary shares quoted at P12 per share. The par value is P10 per share. The fair value of the note payable on the date of restructuring is P2,200,000.

1. What amount should be recognized as gain from debt extinguishment as a result of the equity swap?

2. What amount should be recognized as share premium from the issuance of the shares?

3. Prepare the pertinent journal entry for the equity swap.

Reference no: EM132715792

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