Problem 9-10 (AICPA Adapted) On January 1, 2021, Sunrise Company was experiencing extreme financial pressure and was in default in meeting interest payment on a long term note of P6,000,000 due on December 31, 2021. The interest rate is 12% payable every December 31. The accrued interest payable on January 1, 2021 is P720,000. In an agreement with the creditor, the entity obtained the
Problem 9-10 (AICPA Adapted) On January 1, 2021, Sunrise Company was experiencing extreme financial pressure and was in default in meeting interest payment on a long term note of P6,000,000 due on December 31, 2021. The interest rate is 12% payable every December 31. The accrued interest payable on January 1, 2021 is P720,000. In an agreement with the creditor, the entity obtained the
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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INTERMEDIATE ACCOUNTING 2
DEBT RESTRUCTURE
Transcribed Image Text:Problem 9-10 (AICPA Adapted)
On January 1, 2021, Sunrise Company was experiencing
extreme financial pressure and was in default in meeting
interest payment on a long term note of P6,000,000 due on
December 31, 2021.
The interest rate is 12% payable every December 31. The
accrued interest payable on January 1, 2021 is P720,000.
In an agreement with the creditor, the entity obtained the
following changes in the terms of note:
a. The accrued interest on January 1, 2021 is forgiven.
b. The principal is reduced by P500,000.
c.
d.
The new interest rate is 8% payable every December 31.
The new date of maturity is December 31, 2024.
The prevailing market rate of interest is 10%.
e.
The present value of 1 at 12% for four periods is 0.64 and the
present value of an ordinary annuity of 1 at 12% for four
periods is 3.04.
The PV of 1 at 10% for 4 periods is 0.68 and the PV of an
ordinary annuity of 1 at 10% for 4 periods is 3.17.
Required:
Prepare all journal entries for 2021.
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