Due to the covid-19 pandemic, TRUE has experienced extreme financial pressure and has been in default in meeting interest payment on a long term note of P6,000,000 due on October 1, 2021. The interest rate is 12% payable every October 1. The accrued interest payable on October 1, 2020 is P720,000. In an agreement with PITY, the creditor, the entity obtained the following changes in the terms of note: v The accrued interest on October 1, 2020 is forgiven V The principal is reduced by P500,000 The new interest rate is 9% payable every October 1 v The new date of maturity is October 1, 2025 The present values are as follow: 9% @ 12% PV of 1 for 5 periods 0.6499 0.5674 PV of an ordinary annuity for 5 periods 3.8897 3.6048
Due to the covid-19 pandemic, TRUE has experienced extreme financial pressure and has been in default in meeting interest payment on a long term note of P6,000,000 due on October 1, 2021. The interest rate is 12% payable every October 1. The accrued interest payable on October 1, 2020 is P720,000. In an agreement with PITY, the creditor, the entity obtained the following changes in the terms of note: v The accrued interest on October 1, 2020 is forgiven V The principal is reduced by P500,000 The new interest rate is 9% payable every October 1 v The new date of maturity is October 1, 2025 The present values are as follow: 9% @ 12% PV of 1 for 5 periods 0.6499 0.5674 PV of an ordinary annuity for 5 periods 3.8897 3.6048
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
On October 1, 2020, how much should TRUE recognize as gain or loss on extinguishment?
Transcribed Image Text:Due to the covid-19 pandemic, TRUE has experienced extreme financial pressure and has been in default in meeting
interest payment on a long term note of P6,000,000 due on October 1, 2021. The interest rate is 12% payable every
October 1. The accrued interest payable on October 1, 2020 is #720,000. In an agreement with PITY, the creditor, the
entity obtained the following changes in the terms of note:
The accrued interest on October 1, 2020 is forgiven
The principal is reduced by P500,000
v The new interest rate is 9% payable every October 1
The new date of maturity is October 1, 2025
The present values are as follow:
@ 9%
@ 12%
PV of 1 for 5 periods
0.6499
0.5674
PV of an ordinary annuity for 5 periods
3.8897
3.6048
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