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Prepare the compound journal entry to record the loan

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Question - Virgo Corporation owes P270,000 to First Trust Bank. The debt is a 10-year, 12% note that is due on December 31, 2019. Because Virgo is in financial trouble, First Trust agrees to extend the maturity date to December 31, 2021, reduce the principal to P220,000, and reduce the interest rate to 5%, payable annually on December 31. Virgo's market rate of interest is 8%. (Round off present value factors to 5 decimal places and amounts to nearest peso.)

Required -

1. Can Virgo record a gain under the term modification mentioned above? Explain.

2. Prepare the compound journal entry to record the loan modification for Virgo.

Reference no: EM132546907

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