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How much interest expense should gratitude report for year

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Reference no: EM132966013

On December 31, 2020, Merciful Bank entered into a debt restructuring agreement with Gratitude Corp., which was experiencing financial difficulties. A note for P1,000,000 and one year's accrued interest was due on this date from Gratitude.

The note receivable from Gratitude was restructured as follows:

  • reduced the principal obligation to P700,000.
  • forgave the P120,000 of accrued interest for 2020.
  • extended the maturity date to December 31, 2023.
  • reduced the interest rate to 8%.

Interest is payable annually on December 31, beginning 2021. In accordance with the agreement, Gratitude made payment to Merciful Bank on December 31, 2021.

Problem 1: How much interest expense should Gratitude report for the year ended December 31, 2021?

a. P75,931

b. P64,258

c. P56,000

d. P 0

Reference no: EM132966013

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