2. On December 31, 2012, Greendale Corporation is experiencing extreme financial pressure and is in default in meeting interest payments on its long-term note of P6,000,000 due on December 31, 2013. The interest rate is 10% payable every December 31. In an agreement with the creditor, Greendale Corporation obtained certain changes in the terms of the note as listed in the image below. What is Greendale Corporation's gain on debt restructuring? (Round off present value factors to four decimal places)* • The accrued interest of P600,000 on December 31, 2012 is forgiven. • The principal is reduced by P1,000,000. • The new interest rate is 12%. • The new date of maturity is December 31, 2017. At the time of restructuring, the stated rate of interest of the original obligation prevailed in the market for similar notes.

2. On December 31, 2012, Greendale Corporation is experiencing extreme financial pressure and is in default in meeting interest payments on its long-term note of P6,000,000 due on December 31, 2013. The interest rate is 10% payable every December 31. In an agreement with the creditor, Greendale Corporation obtained certain changes in the terms of the note as listed in the image below. What is Greendale Corporation's gain on debt restructuring? (Round off present value factors to four decimal places)* • The accrued interest of P600,000 on December 31, 2012 is forgiven. • The principal is reduced by P1,000,000. • The new interest rate is 12%. • The new date of maturity is December 31, 2017. At the time of restructuring, the stated rate of interest of the original obligation prevailed in the market for similar notes.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter11: The Statement Of Cash Flows

Section: Chapter Questions

Problem 63.2C: Income, Cash Flow, and Future Losses On January L 2017, Cermack National Bank loaned 55,000,000...

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Income, Cash Flow, and Future Losses On January L 2017, Cermack National Bank loaned 55,000,000 under a 2-year, zero coupon note to a real estate developer. The bank recognized interest revenue on this note of approximately $400,000 per year. Due to an economic downturn, the developer was unable to pay the $5,800,000 maturity amount on December 31, 2018. The bank convinced the developer to pay $800,000 on December 31, 2018, and agreed to extend $5,000,000 credit to the developer despite the gloomy economic outlook for the next several years. Thus, on December 31, 2018, the bank issued a new 2-year, zero coupon note to the developer to mature on December 31, 2020, for $6,000,000. The bank recognized interest revenue on this note of approximately $500,000 per year. The banks external auditor insisted that the riskiness of the new loan be recognized by increasing the allowance for uncollectible notes by $1,500,000 on December 31, 2018, and $2,000,000 on December 31, 2019. On December 31, 20201 the bank received $1,200,000 from the developer and learned that the developer was in bankruptcy and that no additional amounts would be recovered. Required: Prepare a schedule showing the effect of the notes on net income in each of the 4 years.
Income, Cash Flow, and Future Losses On January L 2017, Cermack National Bank loaned 55,000,000 under a 2-year, zero coupon note to a real estate developer. The bank recognized interest revenue on this note of approximately $400,000 per year. Due to an economic downturn, the developer was unable to pay the $5,800,000 maturity amount on December 31, 2018. The bank convinced the developer to pay $800,000 on December 31, 2018, and agreed to extend $5,000,000 credit to the developer despite the gloomy economic outlook for the next several years. Thus, on December 31, 2018, the bank issued a new 2-year, zero coupon note to the developer to mature on December 31, 2020, for $6,000,000. The bank recognized interest revenue on this note of approximately $500,000 per year. The banks external auditor insisted that the riskiness of the new loan be recognized by increasing the allowance for uncollectible notes by $1,500,000 on December 31, 2018, and $2,000,000 on December 31, 2019. On December 31, 20201 the bank received $1,200,000 from the developer and learned that the developer was in bankruptcy and that no additional amounts would be recovered. Required: 1. Prepare a schedule showing annual cash flows fur the two notes in each of the 4 years.
Income, Cash Flow, and Future Losses On January L 2017, Cermack National Bank loaned 55,000,000 under a 2-year, zero coupon note to a real estate developer. The bank recognized interest revenue on this note of approximately $400,000 per year. Due to an economic downturn, the developer was unable to pay the $5,800,000 maturity amount on December 31, 2018. The bank convinced the developer to pay $800,000 on December 31, 2018, and agreed to extend $5,000,000 credit to the developer despite the gloomy economic outlook for the next several years. Thus, on December 31, 2018, the bank issued a new 2-year, zero coupon note to the developer to mature on December 31, 2020, for $6,000,000. The bank recognized interest revenue on this note of approximately $500,000 per year. The banks external auditor insisted that the riskiness of the new loan be recognized by increasing the allowance for uncollectible notes by $1,500,000 on December 31, 2018, and $2,000,000 on December 31, 2019. On December 31, 20201 the bank received $1,200,000 from the developer and learned that the developer was in bankruptcy and that no additional amounts would be recovered. Required: Which figure, net income or net cash flow, does the better job of telling the banks stock-holders about the effect of these notes on the bank? Explain by reference to the schedules prepared in Requirements 1 and 2.
On December 31, 2012, Greendale Corporation is experiencing extreme financial pressure and is in default in meeting interest payments on its long-term note of P6,000,000 due on December 31, 2013. The interest rate is 10% payable every December 31. In an agreement with the creditor, Greendale Corporation obtained certain changes in the terms of the note as listed in the image below. What is Greendale Corporation’s gain on debt restructuring? (Round off present value factors to four decimal places) a. P 1,979,180 b. P 1,600,000 c. P 1,221,020 d. P 0
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On December 31, 2021, LOL Company is experiencing extreme financial pressure and is in default in meeting interest payment on its long-term note of P7,000,000 due on December 31, 2021. The interest rate is 10% payable every December 31. In an agreement with the creditor, LOL obtained the following changes in the terms of the note: * The accrued interest of P700,000 on December 31, 2021 is forgiven. The principal is reduced by P1,000,000. * The new interest rate is 8%. The new date of maturity is December 31, 2026. At the time of restructuring, the market rate of interest was 10%. What is LOL Company's gain on debt restructuring?
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