Answered: What is the gain on extinguishment for…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Due to extreme financial difficulties, Armand Company had negotiated a restructuring of a 10% P 5,000,000 note payable due on Dec. 31, 2020. There is no accrued interest on the note. The creditor agreed to reduce the face amount to P 4,000,000, forgive the unpaid interest, reduce the interest rate to 8% and extend the due date three years from Dec. 31, 2020. The present value of 1 at 10% for 3-periods is 0.75 and the present value of an ordinary annuity of 1 at 10% for 3-periods is 2.49. What is the gain on extinguishment for 2020? *

a. P 1,703,200
b. P 1,203,200
c. P 2,000,000
d. P 540,000

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