Due to extreme financial difficulties, Armand Company had negotiated a restructuring of a 10% P 5,000,000 note payable due on Dec. 31, 2020. The unpaid interest on such date was P 500,000. The creditor agreed to reduce the face amount to P 4,000,000, forgive the unpaid interest, reduce the interest rate to 8% and extend the due date three years from Dec. 31, 2020. The present value of 1 at 10% for 3-periods is 0.75 and the present value of an ordinary annuity of 1 at 10% for 3-periods is 2.49. REQUIRED What is the gain on extinguishment for 2020? What is the interest expense for 2021?
Due to extreme financial difficulties, Armand Company had negotiated a restructuring of a 10% P 5,000,000 note payable due on Dec. 31, 2020. The unpaid interest on such date was P 500,000. The creditor agreed to reduce the face amount to P 4,000,000, forgive the unpaid interest, reduce the interest rate to 8% and extend the due date three years from Dec. 31, 2020. The present value of 1 at 10% for 3-periods is 0.75 and the present value of an ordinary annuity of 1 at 10% for 3-periods is 2.49. REQUIRED What is the gain on extinguishment for 2020? What is the interest expense for 2021?
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable
Section: Chapter Questions
Problem 30E
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Due to extreme financial difficulties, Armand Company had negotiated a restructuring of a 10% P 5,000,000 note payable due on Dec. 31, 2020. The unpaid interest on such date was P 500,000. The creditor agreed to reduce the face amount to P 4,000,000, forgive the unpaid interest, reduce the interest rate to 8% and extend the due date three years from Dec. 31, 2020. The present value of 1 at 10% for 3-periods is 0.75 and the present value of an ordinary annuity of 1 at 10% for 3-periods is 2.49.
REQUIRED
- What is the gain on extinguishment for 2020?
- What is the interest expense for 2021?
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