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Gold Company is experiencing financial difficulty and is negotiating debt restructuring with its creditor to relieve its financial stress. Gold Company has a P2,500,000 note payable to United Bank. The bank accepted an equity interest in Gold Company 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.
Problem 1: What amount should be recognized as gain from debt extinguishment as a result of the "equity swap"?
a. 400,000
b. 100,000
c. 500,000
d. 200,000
Problem 2: What amount should be recognized as share premium from the issuance of the shares?
a. 500,000
c. 400,000
d. 200,000Problem 3: If the shares have no fair value, what amount should be recognized as gain on extinguishment?
a. 200,000
b. 300,000
d. 500,000
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