EXERCISE 10-29 ^^ TROUBLED DEBT RESTRUCTURING-EQUITY SWAP Southwest Enterprises is threatened with bankruptcy due to its inability to meet interest payments and fund requirements to retire $4,000,000 of long-term notes. The notes are all held by Imperial Insurance Company. In order to prevent bankruptcy. Southwest has entered into an agreement with Imperial to exchange equity securities for the debt.

The terms of the exchange are as follows: 250,000 shares of $1 par common stock, cur- rent market value $8 per share, and 20,000 shares of $10 par preferred stock, current market value $70 per share. Prepare journal entries for the exchange on the books of both Imperial Insurance Company and Southwest Enterprises according to the requirements of FASB Statement No. 15.