Chapter 8 – Notes Payable and Debt Restructuring

Problem 8-4 Problem 8-7

2010 Down Payment 1, 250,000
Jan 1 Land 1.0M Present Value of note (4.0M x 0.7118) 2,847,200
Cash 100,000 Cost of Land 4,097, 200
Notes Payable 900,000
Face Value of note 4,000,000
Dec 31 Interest Expense Present Value of note (2,847,200)
Interest Payable Discount on notes payable 1,152,800
(900,000)
2010
Problem 8-5 Jan 1Land 4,097,200
2010 Discount on notes payable 1,152,800
Jan. 1 Machinery 750,000 Notes Payable 4,000,000
Discount on note payable 250,000 Cash 1,250,000
Cash 200,000
Notes Payable 800,000 Dec. 31Interest Expense 341,664
Discount on notes payable 341,664
Dec. 31 Notes Payable 200,000 Date Interest Exp Discount PV
Cash 200,000 1/1/2010 1,152,800 2,847,200
(800,000/4) 12/31/2010 341,664 811,136 3,188,864
12/31/2011 382,664 428,472 3,571,528
31 Interest Expense 100,000 12/31/2012 428,472 - 4,000,000
Discount on notes payable 100,000
2013
Year Notes payable Fraction Amortization Jan 1 Notes Payable 4,000,000
2010 800,000 8/20 100,000 Cash 4,000,000
2011 600,000 6/20 75,000
2012 400,000 4/20 50,000 Problem 8-13
2013 200,000 2/20 25,000 Face of the Loan 5,000,000
2.0M 250,000 Accrued Interest 1,000,000
Total Liability 6,000,000
Problem 8-6
Down Payment 500,000 Land 1,500,000
Present value of note ( 1.5M x 0.2.4018) 3,602,700 Building 4,200,000
Cost of Building 4,102,700 Cost of the Mortgaged property 5,700,000

Face value of note 4,500,000 Total Liability 6,000,000

Present Value of note (3, 602,700) Cost of Land and Building 5,700,000
Discount on notes payable 897,300 Gain on Extinguishment 300,000

2010 Mortgage Payable 5,000,000

Jan 1 Building 3,602,700 Interest Payable 1,000,000
Discount on notes payable 897,300 Accumulated Depreciation 1,800,000
Cash 500,000 Land 1,500,000
Notes Payable 4,500,000 Building 6,000,000
Gain on Extinguishment 300,000
Dec 31Notes Payable 1,500,000
Cash 1,500,000 Problem 8 - 14
Note Payable 1,000,000
Interest Expense 432,324 Accrued Interest 200,000
Discount on notes payable 432,324 Total Liability 1,200,000
Date Payment interest Principal PV
1/1/2010 3,602,700 PAS 39 US GAAP
12/31/2010 1.5M 432,324 1, 067,676 2,535,024 Total Liability 1,200,000 1,200,000
12/31/2011 1.5M 304,203 1,195,797 1,339,227 Cost of equity sec (600,000)
12/31/2012 1.5M 160,773 1,339,227 - Fair Value of equity sec. (1,100,000)
Gain on Extinguishment 600,000 100,000
Fair Value 1,100,000 2.
Cost (600,000) Mortgage Payable 4,000,000
Gain on exchange 500,000 Interest Payable 300,000
Share Capital 3,500,000
1. PAS 39 Share Premium 800,000
Note Payable 1,000,000
Interest Payable 200,000 Problem 8-18
Investment in equity sec. 600,000 FV - OS (300,000 x 10) 3,000,000
Gain on extuingishment 600,000 Par Value OS (300,000 x 5) 1,500,000
Share Premium 1,500,000
2. US GAAP FV - PS (25,000 x 60 ) 1,500,000
Note Payable 1,000,000 Par Value PS (25,000 x 10 ) 250,000
Interest Payable 200,000 Share Premium 1,250,000
Investment in equity sec. 600,000
Gain on extuingishment 100,000 Carrying Amount of Liability 5,400,000
Gain on debt restructuring 500,000 Fair Value of eq. sec 4,500,000
Gain on extinguishment of debt 900,000
Problem 8-15
Bonds Payable 5,150,000 1.
Accrued interest 300,000 Note Payable 5,000,000
Total Liability 5,450,000 Accrued interest payable 400,000
Ordinary Share Capital 1,500,000
Total Liability 5,450,000 Preference Share Capital 250,000
Cost of Land 3,200,000 Share Premium – OS 1,500,000
Gain on extinguishment 2,250,000 Share Premium – PS 1,250,000
Gain on extinguishment of debt 900,000
Bonds Payable 5,150,000 2.
Interest Payable 300,000 Note Payable 5,000,000
Land 3,200,000 Accrued interest payable 400,000
Gain on Extinguishment 2,250,000 Ordinary Share Capital 1,500,000
Preference Share Capital 250,000
Problem 8 – 16 Share Premium – OS 3,900,000
Note Payable 6,000,000 Share Premium – PS 250,000
Accrued Interest 600,000 OS PS
Total Liability 6,600,000 Carrying Amount 5,400,000 5,400,000
Less: Est. Retail Value 5,600,000 Par Value (1,500,000) (250,000)
Gain on Extinguishment 1,000,000 Share Premium 3,900,000 5,150,000

Notes Payable 6,000,000 Problem 8 – 19

Accrued Interest 600,000 Fair Value 4,500,000
Inventory 5,600,000 Par Value 2,500,000
Gain on extinguishment 1,000,000 Share Premium 2,000,000

Problem 8 -17 Carrying Amount of Liability 5,050,000

FV used Carrying amt used Fair Value 4,500,000
Fair Value 4,550,000 Gain on Sale 550,000
Carrying amount of bonds 4,300,000
Par Value of the share (3,500,000) (3,500,000) 1.
Share Premium 1,050,000 800,000 Bonds Payable 4,800,000
Accrued Interest 250,000
Carrying amount of Liability 4,300,000 Share Capital 2,500,000
Fair Value of Share Capital (4,550,000) Share Premium 2,000,000
Loss on extinguishment of debt 250,000 Gain on debt extinguishment 550,000
2.
1. Carrying amount of Liability 5,050,000
Mortgage Payable 4,000,000 Par Value of shares 2,500,000
Interest Payable 300,000 Share Premium 2,550,000
Loss on extinguishment of debt 250,000
Share Capital 3,500,000 Bonds Payable 4,800,000
Share Premium 1,050,000 Accrued Interest 250,000
Share Capital 2,500,000
Share Premium 2,550,000
Problem 8 – 20
1.
Note Payable 5,000,000
Land 2,800,000
Gain on extinguishment of debt 2,200,000

2.
FV (40,000 x 120) 4,800,000
Par value (40,000 x 100) (4,000,000)
Share Premium 800,000

Carrying amount of liability 5,000,000

Fair value of Share Capital (4,800,000)
Gain on extinguishment of debt 200,000

Note Payable 5,000,000

Share Capital 4,000,000
Share Premium 800,000
Gain on extinguishment of debt 200,000

Problem 8 - 21
Note Payable – old 8,000,000
Note Payable – new 7, 000,000
Interest Payable 800,000
Gain on debt restructuring 200,000

Problem 8 – 22
PV of Principal (7.0M x 0.8573) 6,001,100
PV of interest payments (700,000 x 1.7833) 1,248,310
PV of restructure d liability 7,294,410
Face value of new note 7,000,000
Premiums on note payable 294,410

Note payable – old 8,000,000

Accrued interest 640,000
Total Liability 8,640,000
PV of restructured liability 7,294,410
Gain on extinguishment of debt 1,345,590

1.
Note payable –old 8,000,000
Accrued Interest payable 640,000
Note payable – new 7,000,000
Gain on extinguishment 1,345,590
Premium on note payable 294,410
2.
Interest Expense 700,000
Cash (.10 x 7.0M) 700,000