On January 1 2019, Sunrise Company is experiencing extreme financial pressure and is in default in meeting interest payment on its long term note of P6,000,000 due on December 31, 2020. The interest rate is 12% payable every December 31. The accrued interest payable on January 1, 2019 is P720,000.
Problem 8:
On January 1 2019, Sunrise Company is experiencing extreme financial pressure and is in default in meeting
interest payment on its long term note of P6,000,000 due on December 31, 2020. The interest rate is 12%
payable every December 31. The accrued interest payable on January 1, 2019 is P720,000.
In the agreement with the creditor, Sunrise Company obtain the following changes in the terms of note:
a. The accrued interest on January 1, 2019 is forgiven.
b. The principal is reduced by P500,000.
c. The new interest rate is 8% payable in every December 31.
d. The new date of maturity is December 31, 2022.
The present value of 1 at 12% for four period is 0.6355 and the present value of an ordinary annuity of 1 at
12% for four period is 3.0373.
Required:
1. Journal entry to record the modification of terms on January 1, 2019.
2. Journal entry to record the interest payment and amortization of discount for 2019.
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