Due to extreme financial difficulties, Armada Company had negotiated a restructuring of a 10% P5,000,000 note payable due on December 31,2020. The unpaid interest on the note on such date was P500,000. The creditor agreed to reduce the face amount to P4,000,000, forgive the unpaid interest, reduce the interest rate to 8% and extend the due date three years from December 31,2020. The present value of 1 at 10% for three periods is 0.75 and the present value of an ordinary annuity of 1 at 10% for three periods is 2.49. 1. What is the gain on extinguisment for 2020? A. 1,703,200 B. 1,203,200 C. 2,000,000 D. 540,000 2. What is the interest expense for 2021? A. 320,000 B. 379,680 C. 500,000 D. 400,000
Problem 9-16
Due to extreme financial difficulties, Armada Company had negotiated a restructuring of a 10% P5,000,000 note payable due on December 31,2020. The unpaid interest on the note on such date was P500,000.
The creditor agreed to reduce the face amount to P4,000,000, forgive the unpaid interest, reduce the interest rate to 8% and extend the due date three years from December 31,2020.
The present value of 1 at 10% for three periods is 0.75 and the present value of an ordinary annuity of 1 at 10% for three periods is 2.49.
1. What is the gain on extinguisment for 2020?
A. 1,703,200
B. 1,203,200
C. 2,000,000
D. 540,000
2. What is the interest expense for 2021?
A. 320,000
B. 379,680
C. 500,000
D. 400,000
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
