What is the present value of the new liability? What is the gain on modification of debt for 2021? What is the interest expense for 2021?
What is the present value of the new liability? What is the gain on modification of debt for 2021? What is the interest expense for 2021?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Due to adverse economic circumstances and poor management, Tagaytay Highlands Company had negotiated a restructuring of the 9% P6,000,000 note payable to Second Bank due on January 1, 2021. There is no accrued interest on the note. The bank has reduced the principal obligation from P6,000,000 to P5,000,000 and extend the maturity to 3 years on December 31, 2023. However, the new interest rate is 13% payable annually every December 31. The present value of 1 at 9% for three periods is .77 and the present value of an ordinary annuity of 1 at 9% for three periods is 2.53.
- What is the present value of the new liability?
- What is the gain on modification of debt for 2021?
- What is the interest expense for 2021?
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