Christian Co. is threatened with bankruptcy due to its inability to meet interest payments andfund requirements to retire P6,000,000 note payable with accrued interest payable ofP600,000. Christian Co. has entered into an agreement with the creditor to exchange equityinstruments for financial liability. Christian has an option to exchange 300,000 ordinary shareswith P5 par value and PI0 market value, and 25,000 preference shares with P10 par value andP60 market value. The fair market value of the financial liability is P5,200,000 and the carryingamount is P5,800,000.What is the gain on extinguishment of the note payable?O a poOb.P2,100,000O C PLA00.000Od PL500,000

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Business

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What is the gain on extinguishment of the note payable?

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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Question

Christian Co. is threatened with bankruptcy due to its inability to meet interest payments and
fund requirements to retire P6,000,000 note payable with accrued interest payable of
P600,000. Christian Co. has entered into an agreement with the creditor to exchange equity
instruments for financial liability. Christian has an option to exchange 300,000 ordinary shares
with P5 par value and PI0 market value, and 25,000 preference shares with P10 par value and
P60 market value. The fair market value of the financial liability is P5,200,000 and the carrying
amount is P5,800,000.
What is the gain on extinguishment of the note payable?
O a po
Ob.
P2,100,000
O C PLA00.000
Od PL500,000

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