ABC Company, due to extreme financial difficulties has negotiated a restructuring of its 10%, P10,000,000 note payable due on December 31, 2021. The unpaid interest on the note on such date is P1,000,000. The creditor has agreed to reduce the face value to P8,000,000, forgive the unpaid interest, reduce interest rate to 8% and extend the due date three years from December 31, 2021. The present value of 1 at 10% for three periods is 0.75 and present value of an ordinary annuity of 1 at 10% for three periods is 2.49. What is the gain on extinguishment of debt to be recognized by ABC Company on December 21, 2021?
ABC Company, due to extreme financial difficulties has negotiated a restructuring of its 10%, P10,000,000 note payable due on December 31, 2021. The unpaid interest on the note on such date is P1,000,000. The creditor has agreed to reduce the face value to P8,000,000, forgive the unpaid interest, reduce interest rate to 8% and extend the due date three years from December 31, 2021. The present value of 1 at 10% for three periods is 0.75 and present value of an ordinary annuity of 1 at 10% for three periods is 2.49. What is the gain on extinguishment of debt to be recognized by ABC Company on December 21, 2021?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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ABC Company, due to extreme financial difficulties has negotiated a restructuring of its 10%, P10,000,000 note payable due on December 31, 2021. The unpaid interest on the note on such date is P1,000,000. The creditor has agreed to reduce the face value to P8,000,000, forgive the unpaid interest, reduce interest rate to 8% and extend the due date three years from December 31, 2021. The present value of 1 at 10% for three periods is 0.75 and present value of an ordinary annuity of 1 at 10% for three periods is 2.49. What is the gain on extinguishment of debt to be recognized by ABC Company on December 21, 2021?
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