Apple Punch Company is experiencing financial difficulties and a downward trend in its operations. The firm is unable to service its debt and as a result, has missed payment of an annual interest on its loan from Bank of PUP. The principal amount of the loan is P2,000,000 (which is already due) with annual interest of 12% payable annually. Apple Punch management has negotiated a modification of its debt’s 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 12%): • forgive all accrued interest • reduce the principal amount of the loan to P1,800,000 • extend the payment of principal for two years • reduce the interest rate for the remaining two years to 8% The gain on debt restructuring is
Apple Punch Company is experiencing financial difficulties and a downward trend in its operations. The firm is unable to service its debt and as a result, has missed payment of an annual interest on its loan from Bank of PUP. The principal amount of the loan is P2,000,000 (which is already due) with annual interest of 12% payable annually. Apple Punch management has negotiated a modification of its debt’s 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 12%):
• forgive all accrued interest
• reduce the principal amount of the loan to P1,800,000
• extend the payment of principal for two years
• reduce the interest rate for the remaining two years to 8% The gain on debt restructuring is
A. 562,040
B. 0
C. 440,000
D. 322,040
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