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Find what is the entry to record the modification of loan

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An entity has oustanding bank loan . On december 31 20x1 the entity agrees to the following maodification to tge terms of the loan payable:

  1. The principal is reduced from P 2,800,000 to P 2,500,000.
  2. The bank promises not to collect the accrued interest of P 400,000.
  3. The nominal rate is decreased from 14% to 9%.
  4. The maturity date is extended from December 3q 20x1 to January 1 20x6.

The principal is due in lump sum at maturity date but interest is payable annually at each yaer end. The original effective interest rate 14%. The prevailing rate on december 31 20x1 is 12%.

Problem 1: what is the entry to record the modification of the loan?

Reference no: EM132728788

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