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    © All Rights Reserved
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    641 views14 pages

    SQ - C9 (Valix)

    Uploaded by

    Athena Fatmah Ampuan

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    of 14
    PROBLEMS ' Problem 9-1 (ACP) Youth Company is in financial trouble ‘and could not meg maturing installments and interest on its bank loan of P5,000,000. The accrued interest on the loan to date ig P1,000,000. The entity and the bank agreed on a “dacion en pago” arrangement. Thus, the mortgaged land and building were given by the entity as full payment for the loan including accrued interest. The cost of the land is P1,500,000 and the building, P6,000,000" with accumulated depreciation of P1,800,000. The fair value of the land and building is reliably determined at P5,900,000, Required: 1. Compute the gain or loss on extinguishment of debt, 9. Prepare. journal entry to record the dacion,en pago. Problem 9-2 (ACP) Rainbow Company showed the following data with respect to a matured obligation: ¢ Note payable 1,000,000 Accrued interest payable 200,000 The entity was in financial distress and negotiated with the creditor for the settlement of the note payable. Consequently, the entity transferred a patent to the creditor in full satisfaction of the note payable. The patent hada cartying amount of P600,000 and a fair value of P1,100,000. Required: Prepare journal entry to record the asset swap on the books _ of Rainbow Company. J. Under IFRS 2. Under USA GAAP Scanned with CamScanner i || problem 9-8 (IAA) } Sundown Company had bonds payable with face amount of 5,000, a eae a aye amount of P5, 150,000. In addition, unpaid interest on the bonds had b i t On. ad been accrued in the amount The creditor agreed to the settlement of the bonds payable in exchange for land with fair value of P4,500,000 and historical cost of P3,200,000. Required: Prepare journal entry necessary on the books of Sundown Company to record the: settlement of the bonds payable. Problem 9-4 (IAA) Sunshine Company showed the following data with respect to a matured obligation: a | Mortgage payable 5,000,000 Accrued interest payable 500,000 The entity was threatened with a court suit if it could not pay its maturing debt. Accordingly, the entity entered into an agreement with the creditor for the issuance of share capital in full settlement of the mortgage payable. The agreement provided for the issue of 35,000 shares with par value of P100 and current quoted price at P130. The fair value of the liability was P4,700,000. | Required: Prepare journal entry to record the equity swap on the books of Sunshine Company: 1. Ifthe fair value of the share capital is used for the equity swap. 2. Ifthe fair value of the liability is used for the equity swap. 3. If the carrying amount of the liability is used for the equity swap. Scanned with CamScanner Problem 9-5 (IAA) Star Company had outstanding a P6,000,000 note payable ty an investment entity. Accrued interest payable on this note amounted to. P600,000. Because of financial difficulties, the entity negotiated with the investment entity to exchange inventory of machine parts | to satisfy the debt. | The inventory transferred was carried of P3,600,000 with estimated fair value of P5,600,000. The perpetual inventory system was used. Required: Prepare journal entry necessary on the books of Star Company to record the settlement of the note payable. Problem 9-6 (IAA) Quest Company was threatened with bankruptcy due to the inability to meét interest payments and fund requirements to retire P5,000,000 note payable with accrued interest | payable of P400,000. The entity entered into an agreement with the creditor to exchange equity iristruments for the financial liability. f aE The terms of the exchange were 300,000 ordinary shares with P5 par value and P10 market value, and 25,000 preference shares with P10 par value and P60 market value. The fair value of the liability was P4,800,000. Required: Prepare journal entry on the books of Quest Company to record the settlement of the note payable: 1. If the fair value of the equity instruments is used. 2 u the fair value of the liability is used. 4 Te th aaa tea ye: = em e carrying a:qount of the financial liability is u Scanned with CamScanner problem 9-7 (IAA) Sunset Company had bonds payable with face amount of 5,000,000 and a carrying amount of 4,800,000. In addition, unpaid interest on the bonds was accrued in the amount of P250,000. The creditor agreed to the settlement of the bonds payable in exchange for 50,000 shares of P50 par value. The shares had a current market value of P4,500,000. The fair value of the bonds payable was P4,600,000. Required: Prepare journal entry on the books of Sunset Company to record the settlement of the bonds payable: 1, Ifthe fair value of the equity instruments is used. 2. Ifthe fair value of the bonds is used. 3. Ifthe carrying amount of the financial liability is used. Problem 9-8 (IAA) Baguio Company was experiencing financial difficulty and was renegotiating debt restructuring with the creditor to relieve its financial stress. The entity hada P5,000,000 note payable to First Bank. The bank was considering two alternatives. 1. Acceptance of land owned by the entity valued at P4,000,000.and carried at historical cost of P2,800,000. 2, Acceptance of an equity interest in the entity in the form of 40,000 shares with fair value of P120 per share and par value of P100 per share. Required: Prepare journal entry that Baguio Company would make under each. alternative. . Scanned with CamScanner Problem 9-9 (AICPA Adapted) Grey Company had an overdue 8% note payable to City Bany: ore peo 000 with accrued interest of P640,000. ‘As a result of a settlement on January 1, 2021, City Bank agreed to the following restructuring arrangement: | a. Reduced the principal obligation to P7,000,000. b. Forgave the P640,000 accrued interest. c. Extended the maturity date to December 31, 2022. d. Annual interest of 10% is to be paid on December 31, 2021 and 2022. F The present value of 1 at 8% for two periods is 0.86, and the present value of an ordinary annuity of 1 at 8% for two periods is 1.78. The market rate of interest for similar note is also 8%. Required: Prepare journal entries|for 2021 and 2022:to. record the modification of terms... aie Problem 9-10 (AICPA Adapted) On January 1, 2021, Sunrise Company was experiencing extreme financial pressure and was in default in meeting interest payment on a long term note of P6,000,000 due on’ December 31, 2021. The interest rate is 12% payable every December 31. The accrued interest payable on January 1, 2021 isP720,000. - In an agreement with the creditor, the entity obtained the following changes in the terms of note: Z a. The accrued interest on January 1, 2021 is forgiven. b. The principal is reduced by P500,000. c. The new interest rate is 8% payable every December 31. d. The new date of maturity is’ December 31, 2024. e. The prevailing market rate of interest is 10%. ‘The present value of 1 at 12% for four periods is 0.64 and the present value of an ordinary annuity of 1 at 12% for four periods is 3.04. The PV of 1 at 10% for 4 periods is 0.68 and the PV of aa ordinary annuity of | at 10% for 4 periods is 3.17. Required: Prepare all journal entries for 2021. Scanned with CamScanner problem 9-11 (IFRS) Due to extreme financial difficulties, Red Compan negotiated a restructuring of a 12% Pao ons note ayable due on January 1, 2021. "The accrued interest on the note ayable on such date was P600,000. The creditor agreed to orgie the accrued interest, reduce the interest rate to 8% and extend the due date five years from January 1, 2021. The market rate of interest for similar liability is 10%. On January 1, 2021, the entity paid P100,000 to the creditor as an arrangement fee. ‘ ; wy of 1 at 13% for 5 periods 0.57 pV of an ordinary annuity of 1 % i .60 Byer dae 10% tire periols, Tot 7% fF Speriods ben PV of an ordinary annuity of 1 at 10% for 5 periods . 3.79 Required: j, Determine whether there is a substantial modification ct terms. ae 2, Determine the fair value of the new liability based on the 10% market interest rate. Dae 3. Determine the discount on the new, note payable. 4, Determine the gain or loss on extinguishment. 5. Prepare journal entries for 2021. ' " problem 9-12 (IAA) White Company was indebted to the bank for P6,000,000 on January 1, 2021. The principal and accrued interest of P600,000 were overdue. The interest on the note was 10%. The entity negotiated with the bank for the restructuring of the obligation. a. The principal obligation is not reduced. b. The accrued interest of P600,000 is waived. c. The new date of maturity is December 81, 2022. d. The entity shall pay an annual interest of 12% every December 31. ‘The present value of 1 at 10% for two periods is 0.83 and the present value of an ordinary annuity of 1 at 10% for two periods is 1.74. The market rate of interest is 9%. The PV of 1 at 9% for two eriods is 0.84 and the PV of an ordinary annuity of 1 at 9% for two periods is 1.76. Required: | Prepare journal entries for 2021. Scanned with CamScanner Problem 9-13 (AICPA Adapted) Hull Company is indebted to Apex Company unde; P5,000,000, 12%, three-year note dated December 31, 201g . yt , Because of financial difficulties developing in 2021, Company owed accrued interest of P600;000 on the nota ‘U December 31, 2021. 7 Under a'debt restructuring on December 31, 2021, Ap Company agreed to settle the_note and accrued interest _ . A fo, a tract of land with fair value of P4,500,000 and acquisiti t cost of P3,600,000. pee What amount of gain on extinguishment should Hu Company report as component of income from contin any, ‘ing operations in 2021? Q\ (6, oscar on) Piige Scanned with CamScanner problem 9-15 (AICPA Adapted) puring, 2021, Mann Company experiencéd financial difficulties and is likely to default on a P5,000,000, 15% three-year note dated January 1, 2019 payable to Summit Bank. on December Pl, 2021, the bank agreed to settle the note and unpaid interest of P750,000 for P4,100,000 cash payable on January 31, 2022. what amount should be reported’as gain-from extinguishment of debt in the 2021 income statement? Scanned with CamScanner Problem 9-17 (IAA) Due to adverse economic circumstances and - management, Tagaytay Highlands Company had negotia; a a restructuring of an 8% P6,000,000 note payable to Second Bank due on January 1, 2021. There was no accrued intere, d on the note on January 1, 2021. : rest The bank reduced the principal obligation from P6,000,009 to P5,000,000 and extended the maturity to three years on December 31, 2023. $ \ i hil However, the new stated interest rate is 12% payable annually every December 31.” i, The present value of 1 at 8% for three periods is .79-and the present value of an ordinary annuity of 1 at 8% for three periods is 2.58. ‘ The market rate of interest is 10%. The PV of 1 at 10% for 3 periods is 0.75 and the PV of'an ordinary annuity of 1 at 10% for 3 periods is 2.49. \ 1, ‘What amount should be reported as present value of the new note payable on, January 1,202172.,, vee" Scanned with CamScanner problem 9-18 (AICPA Adapted) On January 1, 2021, Granada Company had an overdue 10% note payable to to First, Bank at P8,000,000 and accrued interest payable of 800,000. As a result of a restructuring ‘ielesineat on January 1, 2021, First Bank agreed to the following provisions: The principal obligation is re poses to R6,000,000. Bie ; The accrued interest of P800,0 100 is ieee The date of maturity is extended to December 31, 2024. Annual interest of(12% is to be paid for 4 years every December 31. ~ 9 The present value of 1 at fo” for 4 perio: £0.68) 68)and the present nf value of an ordinary annuity of 1 at; 10% for 4 periods is 83,17. The market rate of interest for similar note is 9%. The PV of J at 9% for 4 periods is .71 and the PV of an ordinary annuity’ of 1 at 9% for 4 periods is 3.24. 1. What amount should be reported as present value of the new note payable on January 1, 2021? Scanned with CamScanner Problem 9-19 (IFRS) On January 1, 2021, Everlast Company had an overdue 19, note payable at P6,000,000 and accrued interest payable. 4 600,000. As a result of a restructuring agreement on Janua’ 1, 2021, the creditor agreed to the following: concessions, va. Accrued interest of P600,000 is forgiven.

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