Eatsy Corp. owes Hardy, Inc., $30,000 on a note payable, plus $1,800 interest. Hardy agrees to accept 400 shares of Eatsy common stock in full settlement of the debt. Eatsy stock has a par value of $10 and a current market value of
$70 per share. As a result of the debt restructuring, Eatsy Corp. should record an

Question

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Eatsy Corp. should record an ordinary gain of $3,800. This is calculated by first determining the total value of the shares given to Hardy, Inc. (400 shares * $70 market value = $28,000). Since the total debt is $31,800 ($30,000 note payable + $1,800 interest), and Eatsy settles it with $28,000 worth of stock, Eatsy gains the difference of $3,800 ($31,800 - $28,000) as an ordinary gain, not an extraordinary gain.