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Determine the gain or loss on extinguishment of debt

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Q1. GREENTREE COMPANY acquires a new manufacturing equipment on January 1, 20x6, on instalment basis. The deferred payment contract provides for a down payment of P300,000 and an 8-year note for P3,104,160. The note is to be paid in 8 equal annual instalment payments of P388,020, including 10% interest. The payments are to be made on December 31 of each year, beginning December 31, 20x6. The equipment has a cash price equivalent of P2,370,000. GREENTREE's financial year-end is December 31. Determine the amount of interest expense to be recognized in 20x6.

Q2. An entity has an outstanding bond payable amounting to P2,500,000 with accrued interest of P250,000. To settle this debt, the entity issued 1,000, P1,000 par value shares, currently selling at P2,250 per share. The bonds have a current fair value of P3,150,000. Determine the gain or (loss) on extinguishment of debt.

Reference no: EM132676305

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