1. San Antonio Corp.

has the following outstanding liabilities as of December 31, 2021:

12% Notes Payable P6,000,000

10% Notes Payable 5,000,000

Accruals on the above notes were yet to be made on the books as of December 31, 2019. The 12% notes
payable was issued on July 1, 2019 with maturity of 4 years paying annual interest of 12% while the 10%
notes payable was issued only last September 30, 2021 and will mature 2 years after with interest
payment date every September 30.

Since the company is having major financial difficulties, it has undergone the following debt
restructuring actions:

- The 12% notes payable was settled by transferring the company’s tract of land with a
carrying amount in the books of P5,000,000 and fair value of P5,600,000.
- The 10% notes payable was extinguished by issuing 300,000 shares of stock of LOS ANGELES
CORP. These shares have a par value of P10 per share and are quoted at P15 per share. The
fair value of the note payable on the date of restructuring is P4,400,000.

REQUIREMENTS:

1. What is the total amount of gain on extinguishment that is to be reported in 2021 profit or
loss of San Antonio Corp.?
2. What is the total amount of share premium on relation to the above transactions?

2. Toronto Corp. had an overdue 10% notes payable to Raptors Bank at P5,000,000 and accrued interest
of P500,000. As a result of a restructuring agreement on January 1, 2021, Raptors Bank agreed to the
following provisions.

- The principal obligation is reduced to P2,500,000

- The accrued interest of P500,000 is forgiven.
- The date of maturity is extended to December 31, 2025.
- Annual interest of 12% is to be paid for 4 years every December 31.

Requirements:

1. What is the gain on extinguishment of debt to be recognized for 2021?

2. What is the carrying amount of the notes payable on December 31, 2021?
3. What is the amount of interest expense reported for 2021?