On January 1, 2020, Granada Company had an overdue 10%note payable to First Bank at P8,000,000 and accrued interestof P800,000.As a result of a restructuring agreement on January 1, 2020,First Bank agreed to the fołlowing provisions:. The principal obligation is reduced to P6,000,000.. The accrued interest of P800,000 is forgiven.• The date of maturity is extended to December 31, 2023.. Annual interest of 12% is to be paid for 4 years everyDecember 31.The present value of 1 at 10% for 4 periods is 0.683 and thepresent value of an ordinary annuity of 1 at 10% for 4 periodsis 3.17.1. What is the present value of the new note payable onJanuary 1, 2020?a. 6,380,400b. 6,000,000 .c. 4,098,000d. 5,464,0002. What is the gain on extinguishment of debt to berecognized for 2020?a. 2,000,000b. 2,800,000c. 2,419,600d. 1,619,6003. What is the interest expense to be recognized for 2020?a. 720,000b. 800,000c. 600,000d. 638,040

Annual Interest Payments (P6000000 x 12%) = P720000 Note Payable at the end of 4th year on Dec 31,…

Answered: On January 1, 2020, Granada Company had…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable

Section: Chapter Questions

Problem 30E

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On July 1, 2019, Aldrich Company purchased as an available-for-sale security 200,000 face value, 9% U.S. Treasury notes for 194,000. The notes mature July 1, 2020, and pay interest semiannually on January 1 and July 1. The notes were sold on December 1, 2019, for 199,000. Aldrich normally uses straight-line amortization on all of its notes. In its income statement for the year ended December 31, 2019, what amount should Aldrich report as a gain on the sale of the available-for-sale security? a. 2,500 b. 3,500 c. 5,000 d. 6,000
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On December 31, 2020, American Bank enters into a debt restructuring agreement with Barkley Company, which is now experiencing financial trouble. The bank agrees to restructure a 12%, issued at par, $3,000,000 note receivable by the following modifications: 1. Reducing the principal obligation from $3,000,000 to $2,400,000. 2. Extending the maturity date from December 31, 2020, to January 1, 2024. 3. Reducing the interest rate from 12% to 10%. Barkley pays interest at the end of each year. On January 1, 2024, Barkley Company pays $2,400,000 in cash to American Bank. Instructions a. Will the gain recorded by Barkley be equal to the loss recorded by American Bank under the debt restructuring? Explain. b. Can Barkley Company record a gain under the term modification mentioned above? Explain. c. Assuming that the interest rate Barkley should use to compute interest expense in future periods is 1.4276%, prepare the interest payment schedule of the note for Barkley Company…
On December 31, 2020, the Bato-bato Finance Company had P5,000,000 notes receivable from Burgundy Company. The note bears 10% interest. The books reported accrued interest of P500,000 in this date. Because of financial distress being suffered by Burgundy, Bato-bato Finance agreed to the restructuring and modification of terms of its loan to Burgundy as follows: • Reduction of principal to P4,000,000; • Reduction of interest to 8% payable annually beginning December 31, 2021; • Accrued interest on December 31, 2020 is condoned and • Principal payment was reset to December 31, 2022. How much is the impairment loss on December 31, 2020 as a result of restructuring? (Use two-decimal places for the PV factor).

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