Navor Corporation is having financial difficulty and therefore has asked Hattan National Bank to restructure its P3 million note outstanding. The present 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.

Instructions

Prepare below are three independent situations. Prepare the journal entry that Navor would make for each of these restructurings.

(a) Hattan National Bank agrees to take an equity interest in Navor by accepting ordinary shares valued at P2,200,000 in exchange for relinquishing its claim on this note. The ordinary shares have a par value of P1,000,000.

(b) Hattan National Bank agrees to accept land in exchange for relinquishing its claim on this note. The land has a book value of P1,950,000 and a fair value of P2,400,000.

(c) Hattan National Bank agrees to modify the terms of the note, indicating that Navor does not have to pay interest on the note over the 3-year period.