On December 31, 2016, Agro Company agreed to the following modification of its existing liability: a. Reduced the principal on the loan of P5,000,000 to P4,000,000 b. Extended the maturity date from December 31, 2017 to December 31, 2019. c. Reduced the loan's nominal interest rate of 12% to 10%. d. Fees incurred directly attributable to the restructuring totaled P50,000 Interest is payable annually at each year-end. The original effective interest rate of the debt instrument is 12%. Prepare all the necessary journal entries for the December 31, 2016 and for the year 2017. Show your solutions.

On December 31, 2016, Agro Company agreed to the following modification of its existing liability: a. Reduced the principal on the loan of P5,000,000 to P4,000,000 b. Extended the maturity date from December 31, 2017 to December 31, 2019. c. Reduced the loan's nominal interest rate of 12% to 10%. d. Fees incurred directly attributable to the restructuring totaled P50,000 Interest is payable annually at each year-end. The original effective interest rate of the debt instrument is 12%. Prepare all the necessary journal entries for the December 31, 2016 and for the year 2017. Show your solutions.

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

Chapter13: Investments And Long-term Receivables

Section: Chapter Questions

Problem 10MC: On January 1, 2019, Park Company accepted a 36,000, non-interest-bearing, 3-year note from a major...

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On January 1, 2019, Northfield Corporation becomes delinquent on a 100,000, 14% note to First National Bank, on which 16,651 of interest has accrued. On January 2, 2019, the bank agrees to restructure the note. It forgives the accrued interest, extends the repayment date to December 31, 2021, and reduces the interest rate to 10%. Required: Prepare a schedule for Northfield to compute the annual interest expense in regard to the preceding note for each year of the restructuring agreement.
On January 1, 2019, Park Company accepted a 36,000, non-interest-bearing, 3-year note from a major customer in exchange for used equipment. The equipment had originally cost Park 200,000 and had a book value of 20,000 on the date of the sale. At the 12% imputed interest rate for this type of loan, the present value of the note is 25,500 on January 1, 2019. Park uses the effective interest rate. What is the carrying value of the note receivable on Parks December 31, 2019, balance sheet? a. 28,560 b. 29,000 c. 32,500 d. 36,000
Spath Company borrows 75,000 by issuing a 4-year, noninterest-bearing note to a customer on January 1, 2019. In addition, Spath agrees to sell inventory to the customer at reduced prices over a 5-year period. Spaths incremental borrowing rate is 12%. The customer agrees to purchase an equal amount of inventory each year over the 5-year period so that a straight-line method of revenue recognition is appropriate. Required: Prepare the journal entries on Spaths books for 2019 and 2020. (Round answers to 2 decimal places.)
On January 1, 2019, Boater Company issues a 20,000 non-interest-bearing, 5-year note for equipment. Neither the fair value of the note nor the equipment is determinable. Boaters incremental borrowing rate is 9%. The asset has a useful life of 7 years. Prepare the journal entry for Boater to record the issuance of the note on January 1.
Restructuring (Debtor) Oakwood Corporation is delinquent on a 2,400,000, 10% note to Second National Bank that was due January 1, 2019. At that time, Oakwood owed the principal amount plus 34,031.82 of accrued interest. Oakwood enters into a debt restructuring agreement with the bank on January 2, 2019. Required: Prepare the journal entries for Oakwood to record the debt restructuring agreement and all subsequent interest payments assuming the following independent alternatives: 1. The bank extends the repayment date to December 31, 2022, forgives the accrued interest owed, reduces the principal by 200,000, and reduces the interest rate to 8%. 2. The bank extends the repayment date to December 31, 2022, forgives the accrued interest owed, reduces the principal by 200,000, and reduces the interest rate to 1%. 3. The bank accepts 160,000 shares of Oakwoods 55 par value common stock, which is currently selling for 14.50 per share, in full settlement of the debt. 4. The bank accepts land with a fair value of 2,300,000 in full settlement of the debt. The land is being carried on Oakwoods books at a cost of 2,200,000.
Brooks Company reported a prior period adjustment of 512,000 in pretax financial "income" and taxable income for 2020. The prior period adjustment was the result of an error in calculating bad debt expense for 2019. The current tax rate is 30%, and no change in the tax rate has been enacted for future years. When the company applies intraperiod income tax allocation, the prior period adjustment will be shown on the: a. income statement at 12,000 b. income statement at 8,400 (net of 3,600 income taxes) c. retained earnings statement at 12,000 d. retained earnings statement at 8,400 (net of 3,600 income taxes)
On January 1, 2019, Mopps Corp. agrees to provide Conklin Company 3 years of cleaning and janitorial services. The contract sets the price at 12,000 per year, which is the normal standalone price that Mopps charges. On December 31, 2020, Mopps and Conklin agree to modify the contract. Mopps reduces the fee for the third year to 10,000, and Conklin agrees to a 4-year extension that will extend services through December 31, 2024, at a price of 15,000 per year. At the time that the contract is modified, Mopps is charging other customers 13,500 for the cleaning and janitorial service. Required: Should Mopps and Conklin treat the modification as a separate contract? If so how should Mopps account for the contract modification on December 31, 2020? Support your opinion by discussing the application to this case of the factors that need to be considered for determining the accounting for contract modifications.
On January 1, 2021, Chong Company had an overdue 10% note payable to AprilBank at P8,000,000 with accrued interest of P800,000. The company and the creditor agreed for the following restructuring agreement: 1. Reduced the principal obligation to P7,000,000. 2. Forgave the P700,000 of the accrued interest, and the remainder shall be added to the reduced principal obligation, payable at the end of the term. 3. Extended the maturity date to two years. The interest rate remained the same, payable annually. The market rate of interest is also the same with the nominal rate. What is the gain (or loss) on restructuring to be recognized in the profit or loss? The PV of 1 at 10% for two periods is 0.83, and the PV of an ordinary annuity of 1 at 10% for two periods is 1.74.
Colt Company is indebted to Kent Company under an P8,000,000, 10%, 4 year note dated December 31, 2018. The interest of P800,000 was paid on December 31, 2019 and 2020. During 2021, Colt Company experienced financial difficulties and is likely to default unless concessions are made. On December 31, 2021, Kent Company agreed to restructure the debt as follows: A.Interest of P800,000 for 2021, due December 31, 2021 was made payable on December 31, 2022.B.Interest for 2022 was waived. C.The principal amount was reduced from P8,000,000 to P7,000,000. 1. What is the interest expense to be recognized for 2022? 2. The gain (loss) on extinguishment of debt is:
On January 1, 2018, Granada Company has an overdue 8% note payable to First Bank at P8,000,000 and accrued interest of P640,000. As a result of a restructuring agreement on January 1, 2018, First Bank agreed to the following provisions: • The principal obligation is reduced to P7,000,000. • The accrued interest of P640,000 is forgiven. • The date of maturity is extended to December 31, 2021. • Annual interest of 10% is to be paid for 4 years every December 31. The present value of 1 at 8% for 4 periods is 0.735 and the present value of an ordinary annuity of 1 at 8% for 4 periods is 3.31.What is the gain on extinguishment of debt to be recognized for 2018?
Due to extreme financial difficulties, Armada Company has negotiated a restructuring of its 10% P5,000,000 note payable due on December 31, 2021. the unpaid interest on the note on such date is P500,000. the creditor has agreed to reduce the face value to P4,000,000, forgive the unpaid interest, reduce the interest rate to 8% and extend the due date three years from December 31, 2021. Armada Company should report gain on extinguishment of debt in its 2021 income statement at Group of answer choices 1,203,200 1,703,200 540,000 2,000000
At January 1, 2021, Transit Developments owed First City Bank Group $720,000, under an 9% note with three years remaining to maturity. Due to financial difficulties, Transit was unable to pay the previous year's interest.First City Bank Group agreed to settle Transit’s debt in exchange for land having a fair value of $570,000. Transit purchased the land in 2017 for $385,000. Required:Prepare the journal entry(s) to record the restructuring of the debt by Transit Developments. - Record any necessary adjustment prior to recording the exchange for debt. - Record the exchange of land to settle debt.