PROBLEM 3 As a result of a restructuring agreement on January 1, 2018, First Bank agreed to the following provisions: • The principal obligation is reduced to P7,000,000. • The accrued interest of P640,000 is forgiven. • The date of maturity is extended to December 31, 2021. Annual interest of 10% is to be paid for 4 years every December31. The present value of 1 at 8% for 4 periods is 0.735 and the present value of an ordinary annuity of 1 at 8% for 4 periods is 3.31. Requirement: a. What is the gain on extinguishment of debt for 2018? b. What is interest expense for 2018?
PROBLEM 3 As a result of a restructuring agreement on January 1, 2018, First Bank agreed to the following provisions: • The principal obligation is reduced to P7,000,000. • The accrued interest of P640,000 is forgiven. • The date of maturity is extended to December 31, 2021. Annual interest of 10% is to be paid for 4 years every December31. The present value of 1 at 8% for 4 periods is 0.735 and the present value of an ordinary annuity of 1 at 8% for 4 periods is 3.31. Requirement: a. What is the gain on extinguishment of debt for 2018? b. What is interest expense for 2018?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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PROBLEM 3
As a result of a restructuring agreement on January 1, 2018, First Bank agreed to
the following provisions:
• The principal obligation is reduced to P7,000,000.
• The accrued interest of P640,000 is forgiven.
• The date of maturity is extended to December 31, 2021.
Annual interest of 10% is to be paid for 4 years every December31.
The present value of 1 at 8% for 4 periods is 0.735 and the present value of an
ordinary annuity of 1 at 8% for 4 periods is 3.31.
Requirement:
a. What is the gain on extinguishment of debt for 2018?
b. What is interest expense for 2018?
Transcribed Image Text:PROBLEM 3
As a result of a restructuring agreement on January 1, 2018, First Bank agreed to
the following provisions:
• The principal obligation is reduced to P7,000,000.
• The accrued interest of P640,000 is forgiven.
• The date of maturity is extended to December 31, 2021.
Annual interest of 10% is to be paid for 4 years every December31.
The present value of 1 at 8% for 4 periods is 0.735 and the present value of an
ordinary annuity of 1 at 8% for 4 periods is 3.31.
Requirement:
a. What is the gain on extinguishment of debt for 2018?
b. What is interest expense for 2018?
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