Total gains on the settlement of debt to be recognized in profit or loss:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On December 31, 2021, ABC Co. was indebted to XYZ Street Company on a P2M, 10% note. Only interest had been paid to date. Due to its financial difficulties ABC has negotiated a restructuring of its notes payable. The parties agree that ABC would settle the debt on the following terms:
• Settle one half of the note by transferring land with a recorded value of P800,000, and a fair value of P900,000.
• Settle one fourth of the note by transferring 200,000 shares of P1 par ordinary shares with a fair value of P1.80 per share.
• Modify the terms of the remaining one fourth of the note by reducing the interest to 5%, extend the due date three years from the date of restructuring and reducing the principal to P300,000.
Total gains on the settlement of debt to be recognized in profit or loss:
• Settle one half of the note by transferring land with a recorded value of P800,000, and a fair value of P900,000.
• Settle one fourth of the note by transferring 200,000 shares of P1 par ordinary shares with a fair value of P1.80 per share.
• Modify the terms of the remaining one fourth of the note by reducing the interest to 5%, extend the due date three years from the date of restructuring and reducing the principal to P300,000.
Total gains on the settlement of debt to be recognized in profit or loss:
P0
P577,306
P340,000
P437,306
P337,306
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