1. What is the gain from extinguishment of debt if the equity swap is measured at the fair value of the shares? 2. What amount should be recognized as share premium if the equity swap is measured at the carrying amount of liability? 3. What is the gain from extinguishment of debt if the equity swap is measured at the fair value of the liability?
1. What is the gain from extinguishment of debt if the equity swap is measured at the fair value of the shares? 2. What amount should be recognized as share premium if the equity swap is measured at the carrying amount of liability? 3. What is the gain from extinguishment of debt if the equity swap is measured at the fair value of the liability?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
On December 31, 2024, Milagros Company showed the following information with respect to a
matured obligation.
Note payable 5,000,000
Accrued interest payable 500,000
The entity is threatened with a court suit if it could not pay the maturing debt. Accordingly,
the entity entered into an agreement with the creditor for the issuance of share capital in full
settlement of the note payable, The agreement provided for the issue of 50,000 ordinary shares
with par value of P50. The ordinary share is currently quoted at P7O. The fair value of the note
payable is P4,000,000.
1. What is the gain from extinguishment of debt if the equity swap is measured at the fair value of the shares?
2. What amount should be recognized as share premium if the equity swap is measured at the carrying amount of liability?
3. What is the gain from extinguishment of debt if the equity swap is measured at the fair value of the liability?
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