ADVANCED ACCOUNTING
14th Edition
ISBN: 9781307664089
Author: Hoyle
Publisher: MCG/CREATE
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 13, Problem 47P
a.
To determine
Explain how this note would be reported in a statement of financial affairs.
b.
To determine
Explain how Company A would record the reorganization.
c.
To determine
Find how much will be collected by various parties.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
In 2X19, Land Corporation acquired land by paying P2,000,000 and signing a note with a face value of
P6,000,000. On the note’s due date, December 31, 2X21, Land owed P480,000 of accrued interest and
P6,000,000 on the note. Land was in financial difficulty and was unable to make any payments. To solve the
problem, Land and the bank agreed to amend the note as follows:
• Extended the maturity to December 31, 2X23.
• The P480,000 interest due on December 31, 2X21 was forgiven.
• Land Corporation would be required to make an annual interest payment of P540,000 every December
31 starting 2X22.
• Transaction cost incurred that is directly related to the debt restructuring was P16,850.
As of December 31, 2X21, the yield rate based on the restructured debt and after considering the amount of
transaction cost is 6.24%.
8. What is the carrying amount of the obligation that should be reported in 2X22 statement of financial
position?
9. Provide the journal entry for debt…
In 2X19, Land Corporation acquired land by paying P2,000,000 and signing a note with a face value of
P6,000,000. On the note’s due date, December 31, 2X21, Land owed P480,000 of accrued interest and
P6,000,000 on the note. Land was in financial difficulty and was unable to make any payments. To solve the
problem, Land and the bank agreed to amend the note as follows:
• Extended the maturity to December 31, 2X23.
• The P480,000 interest due on December 31, 2X21 was forgiven.
• Land Corporation would be required to make an annual interest payment of P540,000 every December
31 starting 2X22.
• Transaction cost incurred that is directly related to the debt restructuring was P16,850.
As of December 31, 2X21, the yield rate based on the restructured debt and after considering the amount of
transaction cost is 6.24%.
5. What type of debt restructuring is being described by the case?
6. What is the total gain from restructuring?
7. What amount should Land Corporation report…
Lolo Co. owes $150,000 in notes payable plus $12,000 of accrued interest to, the company is
having financial difficulty.
Prepare the journal entry on Lolo Co. 's books to record the settlement of this debt
under the following independent cases:
a) To eliminate the debt, the creditor agrees to accept from Lolo Co. land having a fair
value of $140,000 and a recorded cost of $145,000.
b) To eliminate the debt, the creditor agrees to take an equity interest in Lolo Co. Lolo
Co issued 10,000 ordinary shares having a fair value of $14 per share and $5 par value
per share.
c) To eliminate the debt, the creditor agrees to restructure the debt by issuing a new zero
interest bearing note with $170,000 face value for 3 years. The market interest rate of
similar notes is 9%.
Chapter 13 Solutions
ADVANCED ACCOUNTING
Ch. 13 - What does the term insolvent mean?Ch. 13 - Why should a company monitor the reporting of...Ch. 13 - Prob. 3QCh. 13 - Prob. 4QCh. 13 - Prob. 5QCh. 13 - Prob. 6QCh. 13 - What federal legislation governs most bankruptcy...Ch. 13 - What are the primary objectives of a bankruptcy...Ch. 13 - A bankruptcy case can begin with either a...Ch. 13 - A bankruptcy court enters an order for relief. How...
Ch. 13 - What is the difference between fully secured...Ch. 13 - Prob. 12QCh. 13 - Prob. 13QCh. 13 - What is the difference between a Chapter 7...Ch. 13 - What is the purpose of a statement of financial...Ch. 13 - In a bankruptcy liquidation, what actions does the...Ch. 13 - A trustee for a company that is being liquidated...Ch. 13 - If a company is not required to follow U.S. GAAP,...Ch. 13 - Prob. 19QCh. 13 - In determining whether a company needs to use the...Ch. 13 - In following the liquidation basis of accounting,...Ch. 13 - How does a company report its assets when the...Ch. 13 - What does the term debtor in possession mean?Ch. 13 - Who can develop reorganization plans in a Chapter...Ch. 13 - Prob. 25QCh. 13 - Prob. 26QCh. 13 - In a bankruptcy proceeding, what is a cram down?Ch. 13 - Prob. 28QCh. 13 - During reorganization, how should a companys...Ch. 13 - Prob. 30QCh. 13 - Prob. 31QCh. 13 - Under what conditions does a company that is...Ch. 13 - Prob. 33QCh. 13 - Prob. 34QCh. 13 - What are the objectives of the bankruptcy laws in...Ch. 13 - Prob. 2PCh. 13 - Prob. 3PCh. 13 - In a bankruptcy, which of the following statements...Ch. 13 - Prob. 5PCh. 13 - An order for relief creates an automatic stay that...Ch. 13 - Prob. 8PCh. 13 - Which of the following is the minimum limitation...Ch. 13 - On a statement of financial affairs, how are...Ch. 13 - What is a debtor in possession? a. The holder of a...Ch. 13 - How are anticipated administrative expenses...Ch. 13 - Prob. 13PCh. 13 - Which of the following is not an expected function...Ch. 13 - What is an inherent limitation of the statement of...Ch. 13 - What is a cram down? a. An agreement about the...Ch. 13 - Prob. 17PCh. 13 - Prob. 18PCh. 13 - Prob. 19PCh. 13 - How are assets to be reported when the liquidation...Ch. 13 - The New England Company has a debt to a bank of...Ch. 13 - On a balance sheet prepared for a company during...Ch. 13 - Which of the following is not a reorganization...Ch. 13 - What accounting is made for professional fees...Ch. 13 - Which of the following is necessary for a company...Ch. 13 - Prob. 26PCh. 13 - For a company emerging from bankruptcy, how are...Ch. 13 - The Walston Company is to be liquidated and has...Ch. 13 - Prob. 29PCh. 13 - Prob. 30PCh. 13 - Prob. 31PCh. 13 - Mondesto Company has the following debts:...Ch. 13 - A statement of financial affairs created for an...Ch. 13 - A company preparing for a Chapter 7 liquidation...Ch. 13 - Olds Company declares Chapter 7 bankruptcy. The...Ch. 13 - A company going through a Chapter 7 bankruptcy has...Ch. 13 - Pumpkin Company is going through bankruptcy...Ch. 13 - Prob. 38PCh. 13 - Prob. 39PCh. 13 - Kansas City Corporation holds three assets when it...Ch. 13 - Prob. 41PCh. 13 - Prob. 42PCh. 13 - Prob. 43PCh. 13 - Prob. 44PCh. 13 - The following balance sheet has been prepared by...Ch. 13 - Prob. 46PCh. 13 - Prob. 47P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Mozely Company borrowed $400,000 on a 10 percent note payable to finance a new warehouse Mozely is constructing for its own use. The only other debt on Mozely's books is a $600,000, 12 percent mortgage payable on an office building. At the end of the current year, average accumulated expenditures on the new warehouse totaled $475,000. Mozely should capitalize interest for the current year in the amount of: A. $40,000 B. $47,500 C. $49,000 D. $52,250arrow_forwardYouth 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 accumulated depreciation of P1,800,000. The fair value of the land and building is about P5,900,000. 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?arrow_forwardPratt 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?arrow_forward
- Ivanhoe Company purchased land, a building, and equipment on January 2, 2021, for $940,000. The company paid $160,000 cash and signed a mortgage note payable for the remainder. Management's best estimate of the value of the land was $388,000; of the building, $446,200; and of the equipment, $135,800. Record the purchase. (Use Mortgage Payable for account.) (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Date Account Titles and Explanation Jan. 2 (To record purchase of property.) Debit Creditarrow_forwardOn December 31, 2020, ABC Company defaulted in the payment of the 10% interest on its loan from a bank of P1,000,000 because of financial difficulties. On the same date, ABC arranged a dacion en pago transaction with the bank in payment of its obligations. The bank agreed to accept the machinery of ABC Company acquired several years ago at P2,000,000 and will accumulated depreciation as of this date of P1,200,000. The fair value of this machinery on this date is P1,150,000. According to our standards, what amount of gain or loss from extinguishment of debt shall ABC Company recognize on this transaction?arrow_forwardTasa Incorporated after having experienced financial difficulties in 2021, negotiated with a major creditor and arrived at an agreement to restructure a note payable on December 31, 2021. The creditor was owed a principal of P3,600,000 and interest of P400,000 but agreed to accept equipment worth 850,000 and a note receivable from Tasa's customer with carrying amount of P2,700,000. The equipment had an original cost of P900,000 and an accumulated depreciation of 300,000. a.What amount should be recognized as gain from extinguishment of debt on December 31, 2021?arrow_forward
- Use the following information for questions 6 and 7: On December 31, 2018, Garnel Co. is in financial difficulty and cannot pay a note due that day. It is a $600,000 note with $60,000 actrued interest payable to Fred Co.. Fred agrees to accept from Garnel a building that has a fair value of $590,000, an original cost of $530,000, and accumulated depreciation of $130,000. Garnel should recognize a gain or loss on the disposal of the building of Select one: O a. $0. O b. $70,000 loss. O c. $60,000 gain. O d. $190,000 gainarrow_forwardCompany Z has a deposit with ABC Bank. It obtained a loan from ASAP Financing Corp. in connection with the operation of its business. For the year 2021, assume the following:Company Z’s Net Income before Interest Expense (subject to 25%), P2,500,000Interest Income (from ABC Bank, gross of FWT), P480,000FWT on Interest Income, P96,000Interest Expense, P200,000How much is the taxable income of Company Z for 2021 after deducting interest expense?arrow_forwardPharoah Inc. owes Waterway Bank $166,000 plus $16,300 of accrued interest. The debt is a 10-year, 10% note. During 2023, Pharoah's business declined due to a slowing regional economy. On December 31, 2023, the bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $302,000, accumulated depreciation of $185,000, and a fair value of $146,000. The bank plans to dispose of the machine at a cost of $6,000. Both Pharoah and Waterway Bank prepare financial statements in accordance with IFRS 9. (a) Prepare the journal entries for Pharpah and Waterway Bank to record this debt settlement. Assume Waterway Bank had previously recognized an allowance for doubtful accounts for the impairment prior to the settlement. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List all debit entries before credit entries.) Date…arrow_forward
- Whispering Company owes $190,000 plus $16,600 of accrued interest to Metlock State Bank. The debt is a 10-year, 10% note. During 2025, Whispering's business deteriorated due to a faltering regional economy. On December 31, 2025, Metlock State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $344,000, accumulated depreciation of $189,200, and a fair value of $166,000. (a) Prepare journal entries for Whispering Company and Metlock State Bank to record this debt settlement. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when the amount is ent ed. Do not indent manually. List all debit entries before credit entries.) No. Date Account Titles and Explanation Whispering Company (Debtor): Debit Creditarrow_forwardLogitech Corporation transferred $100,000 of accounts receivable to a local bank. The transfer was made without recourse. The local bank remits 85% of the factored amount to Logitech and retains the remaining 15%. When the bank collects the receivables, it will remit to Logitech the retained amount less a fee equal to 3% of the total amount factored. Logitech estimates a fair value of its 15% interest in the receivables of $11,000 (not including the 3% fee). What is the effect of this transaction on the company’s assets, liabilities, and income before income taxes?arrow_forwardBuddy Mountain Corp. currently has an issued debenture outstanding with ING Bank. The note has a principal of $2.5 million, was issued at face value, an interest payable at 7%. The term of the debenture was 10 years and was issued on December 31, 2010. The current market rate of this debenture is 9%. Buddy Mountain Corp. has been experiencing financial difficulties and has asked ING Bank to restructure the note. Both Buddy Mountain and ING Bank prepare financial statements in accordance with IFRS. It is currently December 3, 2017 ING Bank has agreed to accept a building in exchange for relinquishing this debenture. This building has a carrying amount of $900,000 (original cost $3,000,000) and a fair value of $2 million. Assume that the bank had already recognized a loss on impairment Required: Prepare journal entries that Buddy Mountain Corp. and ING Bank would make for the restructuring.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
The accounting cycle; Author: Alanis Business academy;https://www.youtube.com/watch?v=XTspj8CtzPk;License: Standard YouTube License, CC-BY