Youth Company is in financial trouble and could not meet maturing installments and interest on its bank loan of P5,000,000. The accrued interest on the loan on this date is P1,000,000. Youth Company and the bank agreed on a “dacion en pago” arrangement. Thus the mortgaged land and building were
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Youth Company is in financial trouble and could not meet maturing installments and interest on its bank loan of P5,000,000. The accrued interest on the loan on this date is P1,000,000. Youth Company and the bank agreed on a “dacion en pago” arrangement. Thus the mortgaged land and building were given by Youth Company as full payment for the loan including accrued interest. The cost of the land is P1,500,000 and the building, P6,000,000 with
1. What amount of gain (loss) on debt restructuring and gain (loss) on exchange respectively, would be recognized by Youth if the US GAAP is applied?
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- Southwestern Wear Inc. has the following balance sheet: The trustees costs total 281,250, and the firm has no accrued taxes or wages. The debentures are subordinated only to the notes payable. If the firm goes bankrupt and liquidates, how much will each class of investors receive if a total of 2.5 million is received from sale of the assets?Pratt Industries owes First National Bank $5 million but, due to financial difficulties, is unable to comply with the original terms of the loan. The bank agrees to settle the debt in exchange for land having a fair value of $3 million. The book value of the property on Pratt’s books is $2 million. For the reporting period in which the debt is settled, what amount(s) will Pratt report on its income statement in connection with the troubled debt restructuring?Chico Company entered into a troubled debt restructuring agreement with Social Bank. The bank agreed to accept the land with a carrying amount of P800,000 and a fair value of P1,000,000 in exchange for a note payable with a carrying amount of P1,500,000. What is the gain on extinguishment of debt?
- Super Bank has a P6,000,000 loan to Duper Realty, which was invested by the latter in real estate development. Due to the economic downtrend in the real estate business, Duper Realty is experiencing declining sales and is likely to default on its obligation to Super Bank. Duper Realty requests for a restructuring of its loan with Super Bank. The prevailing market rate of interest for similar obligations at the time of restructuring is 9%. Accrued interest receivable on the loan at December 31, 2020 is P600,000, based on a stated interest rate of 10 Alternatives: First Alternative Reduction of Principal to P5,000,000. Condonation of accrued interest. Extension of the maturity date to December 31, 2022. Reduction of interest rate to 8%, payable annually on December 31. Second Alternative Condonation of accrued interest. The principal amount of P1,200,000 plus interest on the unpaid principal reduced to 8%, payable annually starting December 31, 2021. Third Alternative Payment…The statement of affairs of Darrell Putix Co. indicates that unsecured creditors without priority with total claims of ₱720,000 may expect to recover only ₱288,000 after all the assets were sold. Among the creditors of Darrell Putix Co. are the following: Government - taxes payable of ₱400,000, inclusive of ₱80,000 assessents and surcharges. XYZ bank - loan payable of ₱4,000,000 and accrued interest of ₱200,000, backed by collateral security with realizable value of ₱4,800,000. Alpha Financing Co. - loan payable of ₱3,200,000 backed by collateral security with realizable value of ₱2,000,000. Mr. Bombay - loan payable of ₱1,000,000 and accrued interest of ₱200,000. No collateral security. How much is the expected recovery of partially secured creditors? a. 1,280,000 b. 2,480,000 c. 2,160,000 d. 0The Premiere Company obtained a short-term bank loan for P1,000,000 at an annual interest rate 12%. As a condition of the loan, Premiere is required to maintain a compensating balance of P300,000 in its checking account. The checking account earns interest at an annual rate of 3%. Premiere would otherwise maintain only P100,000 in its checking account for transactional purposes. Required: Compute for the effective interest rate assuming: a. Loan is not discounted. Loan is without compensating balance. b. Loan is discounted. Loan is without compensating balance. c. Loan is not discounted. Loan is with compensating balance. d. Loan is discounted. Loan is with compensating balance. e. Which of the loan arrangements above is most beneficial to the firm? Justify.
- Karim Inc., which owes Habib Co. SAR 900,000 in notes payable, is in financial difficulty. To eliminate the debt, Habib agrees to accept from Karim land having a fair value of SAR 610,000 and a recorded cost of SAR 450,000. a) Compute the amount of gain or loss to Karim, Inc. on the transfer (disposition) of the land. b) Compute the amount of gain or loss to Karim, Inc. on the settlement of the debt. c) Prepare the journal entry on Karim's books to record the settlement of this debtSedgewick arranged for an open-end construction loan from the Second National Bank not to exceed $50,000. The loan was closed and Sedgewick drew $30,000 initially. Three months later he drew the remaining $20,000. What is the bank’s position concerning the possibility of intervening liens?Company A is currently cash-constrained, and must make a decision about whether to delay paying one of its suppliers, or taking out a loan. They owe the supplier $23345, and they can borrow the money from Bank A, which has offered to lend the firm $23345 for 2 month(s) at an APR (compounded) of 15%. The bank will require a (no-interest) compensating balance of 7% of the face value of the loan and will charge a $216 loan origination fee, which means Hand-to-Mouth must borrow even more than the $23345. Compute the EAR of the loan. Give typing answer with explanation and conclusion
- Kwell Co. owes Kuto Bank P4,000,000 plus accrued interest of P360,000. The unamortized discounton the loan is P80,000. The debt is a 10-year, 12% loan. During 20x1, Kwell’s business deteriorateddue to loss of demand for its services. On December 31, 20x1, Kuto Bank agrees to accept oldequipment and cancel the entire debt. The equipment has a cost of P12,000,000, accumulateddepreciation of P8,800,000 and fair value of P3,600,000. How much is the gain (loss) on theextinguishment of the debt?Anteium Company owes $80,000 on a note payable that is currently due. The note is held by a local bank and is secured by a mortgage lien attached to three acres of land worth $48,000. The land originally cost Anteium $31,000 when acquired several years ago. The only other account balances for this company are Investments of $20,000 (but worth $25,000), Accounts Payable of $20,000, Common Stock of $40,000, and a deficit of $89,000. Anteium is insolvent and attempting to arrange a reorganization so that the business can continue to operate. The reorganization value of the company is $82,000.View each of the following as an independent situation:a. On a statement of financial affairs, how would this note be reported? How would the land be shown?b. Assume that Anteium develops an acceptable reorganization plan. Sixty percent of the common stock is transferred to the bank to settle that particular obligation. A 7 percent, three-year note payable for $5,000 is used to settle the accounts…On January 1, 2021, Shangrila Company borrowed P2,000,000 at an interest rate of 12% specifically for the construction of a new building. The actual interest cost on this specific borrowings was P240,000 but interest of P10,000 was earned from the temporary investment of the borrowings proceeds. Shangrila Company also had the following other loans in 2021 which were borrowed for general purposes but the proceeds were used in part for the construction of the building. 10% bank loan – Principal – 3,000,000; Interest – 300,000 12% long term loan – Principal – 5,000,000; Interest – 600,000 The construction began on January 1, 2021 and was completed on December 31, 2021. The expenditures on the construction were P2,000,000 on January 1, P1,000,000 on March 31 and P3,000,000 on September 30. Required: Compute the cost of the new building.
