This Company defaulted in two annual interest payments on its P4,000,000 loan. Because of the default, the lender agrees on December 31, 2021 to restructure the loan as follows: The lender waives the repayment of the unpaid (simple) interest and any future interests. The loan, which is originally maturing in lump sum on December 31, 2021, will be due in four equal annual payments of P1,000,000, to start immediately. The original effective interest rate is 10%, equal to the stated rate on the original loan contract. The current market rate on December 31, 2021 is 12%. What amount of interest expense should This Company recognize in 2022?
This Company defaulted in two annual interest payments on its P4,000,000 loan. Because of the default, the lender agrees on December 31, 2021 to restructure the loan as follows: The lender waives the repayment of the unpaid (simple) interest and any future interests. The loan, which is originally maturing in lump sum on December 31, 2021, will be due in four equal annual payments of P1,000,000, to start immediately. The original effective interest rate is 10%, equal to the stated rate on the original loan contract. The current market rate on December 31, 2021 is 12%. What amount of interest expense should This Company recognize in 2022?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
This Company defaulted in two annual interest
payments on its P4,000,000 loan. Because of the
default, the lender agrees on December 31, 2021 to restructure the loan as follows: The lender waives the repayment of the unpaid (simple) interest and any future interests. The loan, which is originally maturing in lump sum on December 31, 2021, will be due in four
equal annual payments of P1,000,000, to start
immediately.
The original effective interest rate is 10%, equal to the stated rate on the original loan contract. The current market rate on December 31, 2021 is 12%. What amount of interest expense should This Company recognize in 2022?
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