Shurely Inc. lent $5,000,000 to Beeti Corp. in 20X3. Beeti Corp. has recently brought a new product to market and is having a tough time selling it. As a result, Beeti Corp. is experiencing cash flow problems and cannot repay the loan to Shurely Inc. that is maturing. After discussions between the two parties, Shurely Inc. has agreed to accept from Beeti Corp. common shares in full settlement of the loan. The fair value of the common shares is $3,000,000.

Required:
1. Provide the entry that Beeti Corp. would record as a result of the above arrangement.
2. What is the difference between the nature of the above arrangement and defeasance?
3. From Shurely Inc.’s perspective, do you think the arrangement to accept common shares in exchange for settling the debt is a good choice?
4. Briefly explain the purpose of the 10% threshold in the substitution or modification of debt arrangements.