Sunset Company showed the following data with respect to a matured obligation: Mortgage payable 8,000,000 Accrued interest payable 600,000 The entity is threatened with a court suit if it could not pay its maturing debt. Accordingly, the entity entered into an agreement with the creditor for the issuance of share capital in full settlement of the mortgage. The agreement provided for the issue of 35,000 shares with par value of 100. The share is currently quoted at 130. The fair value of the liability is 4,500,000. Prepare the journal entry to record the equity swap on the books of Sunset Company.

Sunset Company showed the following data with respect to a matured obligation: Mortgage payable 8,000,000 Accrued interest payable 600,000 The entity is threatened with a court suit if it could not pay its maturing debt. Accordingly, the entity entered into an agreement with the creditor for the issuance of share capital in full settlement of the mortgage. The agreement provided for the issue of 35,000 shares with par value of 100. The share is currently quoted at 130. The fair value of the liability is 4,500,000. Prepare the journal entry to record the equity swap on the books of Sunset Company.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 7MCQ

See similar textbooks

Similar questions

6. On December 31, 2012, Sunshine company showed the following data with respect to its matured obligation: Mortgage Payable 12,000,000 Accrued interest payable 900,000 The entity is threatened with a court suit if it could not pay its maturing debt. Accordingly, the entity entered into an agreement with the creditor for the issuance of share capital in full settlement of the mortgage. The agreement provided for the issue of 105,000 shares with par value of P100. The share is currently quoted at P130. The fair value of the liability is P13,500,000. If the carrying amount of the liability is used for the equity swap, what is the amount of gain/(loss) on extinguishment of debt?
On December 31, 2021, Sunshine Company showed the following data with respect to its matured obligation: Mortgage payable P 4,000,000Accrued interest payable 300,000The entity is threatened with a court suit if it could not pay its maturing debt. Accordingly, the entity entered into an agreement with the creditor for the issuance of share capital in full settlement of the mortgage. The agreement provided for the issue of 35,000 shares with par value of P100. The share is currently quoted at P130 and fair value of the liability is P4,500,000. 1. The amount of share premium to be recognized on the equity swap is: 2. Following IFRIC 19, the gain (loss) on the extinguishment of debt is:
On December 31, 2020, Camiguin Company shows the following data with respect to its matured obligation. Note payable P6,000,000 Accrued interest payable 1,500,000 The company is threatened with a court suit if it could not pay its maturing debt. Accordingly, the company enters into an agreement with the creditor for the issuance of ordinary shares in full settlement of the note payable. The agreement provides for the issue of 50,000 ordinary shares with par value of P100. The ordinary share is currently quoted at P150 per share. How much is the share premium arising from the debt restructuring considered as “equity swap”? Group of answer choices P2,500,000 P1,500,000 P 0 P1,000,000
19. Florence Inc. issued 8,000, 5-year convertible bonds of $2,000 each for $4,000,000 at the beginning of 2021. The bonds have a stated rate of interest of 9% and interest is payable annually. Each bond can be convertible into 100 shares with a par value of $10. The market rate of similar nonconvertible debt is 10%. The fair value of the liability component using the “with-and-without” method is $3,848,288 $2,483,600 $1,365,688 $ 151,712
2. On January 1, 2020, ABC Corporation issued P5,000,000, 12%, convertible bonds. The privilege allows the holder the right to convert the liability instrument into 25 ordinary shares with P25 par value for every P1000 convertible bond, with minimum cash out of P2 per share. The quoted market price of the bonds including the conversion feature cannot be determined reliably on this date but the effective interest rate of these instruments with the privilege is 10%. It requires payment of interest every January 1 starting 2021 until its maturity on January 1, 2028. The quoted price of the bonds ex – privilege cannot be determined reliably as well, however; the market interest rate of the bonds ex-privilege is 13% at the date of issue. Determine the amount to be allocated to the equity component out of the proceeds of the entire issue. (Use 4-decimal PVF and round off final answer to whole number)
Florence Inc. issued 8,000, 5-year convertible bonds of $2,000 each for $4,000,000 at the beginning of 2021. The bonds have a stated rate of interest of 9% and interest is payable annually. Each bond can be convertible into 100 shares with a par value of $10. The market rate of similar nonconvertible debt is 10%. Determine the fair value of the equity component using the “with-and-without” method is a. $3,848,288 b. $2,483,600 c. $1,365,688 d. $151,712
On Jan. 1, 2021, Gel Co. settled a P 1,000,000 loan by issuing to the lender 10,000 shares with par value of P 50 per share. The shares are selling at 120 per share on Jan. 1, 2021. How much gain/(loss) on extinguishment of debt is to be recognized? *a. P 200,000b. (P 200,000)c. P 500,000d. (P 500,000)
On January 1, 20x1, an entity has an outstanding note payable with carrying amount of P1,000,000. On this date, the debtor agrees to receive 10,000 shares of theentity with par value per share of P10 in full settlement of the note payable. The shares are currently selling at P75 per share. Requirements: a. Compute for the gain or loss on the derecognition of the note payable. b. Provide the entry to record the derecognition of the note payable.
23. The following information pertains to Long Inc.'s investment in marketable debt securities: A marketable available-for-sale debt security costing $40,000, written down to $25,000 in Year 4, had a $30,000 fair value on December 31, Year 5. On December 31, Year 5, Long reclassified a debt security with a $100,000 carrying cost and a $90,000 fair value from the trading category to the available-for-sale category. All changes in the value of the available-for-sale securities are noncredit related and considered temporary. What is the net effect of the above items on Long's available-for-sale debt securities valuation allowance for unrealized losses as of December 31, Year 5? A. No effect. B. $5,000 decrease. C. $10,000 decrease. D. $15,000 decrease
ABC Company is in financial difficulties and agreed to issue 20,000 of its P20 par value shares in settlement of its loan from a bank of P1,000,000. On this date, the accrued interest not yet paid by ABC Company amounted to P120,000. The fair market value of the shares on this date is P40 per share while the fair market value of the liability is P1,200,000. According to our standards, what amount of gain or loss from extinguishment of debt shall be recognized from this equity swap?
Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2021. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $66 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2021, was $70 million.Required:1. Prepare the journal entry to record Fuzzy Monkey’s investment on January 1, 2021.2. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2021 (at the effective rate).3. Prepare the journal entry by Fuzzy Monkey to record interest on December 31, 2021 (at the effective rate).4. At what amount will Fuzzy Monkey report its investment in the December 31, 2021 balance sheet? Why?5. How would Fuzzy Monkey’s 2021 statement of cash flows be affected by this investment? (If more than…
Show your solution in good accounting form. On July 1, 2021, after recording interest and amortization, BLUE Company converted ₱5,000,000 of its 12% convertible bonds into 50,000 shares of ₱10 par value ordinary share. On the conversion date, the carrying amount of the bonds was ₱6,000,000, the market value of the bonds was ₱6,500,000 and BLUE's ordinary shares was publicly trading at ₱150 per share. BLUE incurred ₱200,000 in connection with the conversion. What amount of additional share premium should BLUE record as result of the conversion? A. ₱ 6,000,000 B. ₱ 5,500,000 C. ₱ 5,800,000 D. ₱ 5,300,000