ABC Corporation is experiencing financial difficulties and a downward trend in its results of operations. The firm is unable to service its debt and as a result, has missed payment of an annual interest on its loan from DEF Company. The principal amount of the loan is P 5,000,000 (which is already due ) with annual interest of 10% payable annually. ABC Corporation’s management has negotiated a modification of its debt terms with its creditors. The creditors agree to the following new terms (assume that at this time, the prevailing market rate of interest remained at 11%): • Forgive all accrued interest. • Reduce the principal amount of the loan to P 4,000,000. • Extend the payment of principal for 3 years. • Reduce the interest rate for the remaining 3 years to 8% How much is the gain on debt restructuring? P 1,698,498.16 P 1,793,245.77 P 1,968,498.61 P 1,698,948.16
ABC Corporation is experiencing financial difficulties and a downward trend in its results of operations. The firm is unable to service its debt and as a result, has missed payment of an annual interest on its loan from DEF Company. The principal amount of the loan is P 5,000,000 (which is already due ) with annual interest of 10% payable annually. ABC Corporation’s management has negotiated a modification of its debt terms with its creditors. The creditors agree to the following new terms (assume that at this time, the prevailing market rate of interest remained at 11%): • Forgive all accrued interest. • Reduce the principal amount of the loan to P 4,000,000. • Extend the payment of principal for 3 years. • Reduce the interest rate for the remaining 3 years to 8% How much is the gain on debt restructuring? P 1,698,498.16 P 1,793,245.77 P 1,968,498.61 P 1,698,948.16
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
ABC Corporation is experiencing financial difficulties and a downward trend in its results of operations. The firm is unable to service its debt and as a result, has missed payment of an annual interest on its loan from DEF Company. The principal amount of the loan is P 5,000,000 (which is already due ) with annual interest of 10% payable annually. ABC Corporation’s management has negotiated a modification of its debt terms with its creditors.
The creditors agree to the following new terms (assume that at this time, the prevailing market rate of interest remained at 11%):
• Forgive all accrued interest.
• Reduce the principal amount of the loan to P 4,000,000.
• Extend the payment of principal for 3 years.
• Reduce the interest rate for the remaining 3 years to 8%
How much is the gain on debt restructuring?
The creditors agree to the following new terms (assume that at this time, the prevailing market rate of interest remained at 11%):
• Forgive all accrued interest.
• Reduce the principal amount of the loan to P 4,000,000.
• Extend the payment of principal for 3 years.
• Reduce the interest rate for the remaining 3 years to 8%
How much is the gain on debt restructuring?
P 1,698,498.16
P 1,793,245.77
P 1,968,498.61
P 1,698,948.16
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