6 - DEBT RESTRUCTURING: ASSET SWAP, EQUITY SWAP AND MODIFICATION OF TERMS MARIANA CORPORATION is having financial difficulty and therefore has asked NALOOY Bank to restructure its P3 million note outstanding. The presented note has 3 years remaining and pays a current rate of interest of 10%. The present market rate for a loan of this nature is 12%. The note was issued at its face value. Presented below are four independent situations. Determine the journal entry that Mariana would make for each of the following types of debt restructuring. 1. NALOOY Bank agrees to take an equity interest in Mariana by accepting common stock valued at 2,400 in exchange for relinquishing its claim on this note. The common stock has a par value of P1,200,000. a. Notes payable 3,000,000 Common stock 3,000,000 b. Notes payable 3,000,000 Common stock 1,200,000 APIC 1,800,000 C. Notes payable 3,000,000 Common stock 1,200,000 Interest expense APIC 300,000 1,500,000 d. No adjustment 2. NALOOY Bank agrees to accept land in exchange for relinquishing its claim on this note. The land has a book value of P2,000,000 and a fair value of P2,500,000. a. Notes payable Land 3,000,000 Gain on debt restructuring 2,500,000 500,000 b. Notes payable 3,000,000 Land 2,000,000 Interest expense 300,000 Gain on exchange 200,000 Gain on debt restructuring 500,000 C. Notes payable Land 3,000,000 Gain on exchange Gain on debt restructuring 2,000,000 500,000 500,000 d. No adjustment 3. NALOOY Bank agrees to modify the terms of the note, indicating that Dolores does not have to pay any interest on the note over the 3-year period. a. Interest payable 300,000 Gain on debt restructuring 300,000 b. Loss on debt restructuring 300,000 Interest expense 300,000 C. Interest expense 900,000 Gain on debt restructuring 900,000 d. No adjustment 4. NALOOY Bank agrees to reduce the principal balance due to P2,000,000 and require interest only in the second and third year at a rate of 10%. a. Notes payable - old 3,000,000 Notes payable - new Gain on debt restructuring 2,400,000 600,000 b. Notes payable- old 3,000,000 Notes payable - new 3,000,000 C. Notes payable - old 3,000,000 Notes payable - new 2,600,000 Gain on debt restructuring 400,000 d. No adjustment