Reference no: EM133069810
PROBLEM 1 - The entity has an outstanding bank loan. On December 31, 20x1, the entity agrees to the following modification to the terms of the loan payable:
1. The principal is reduced from P2,800,000 to P2,500,000.
2. The bank promises not to collect the accrued interest of P400,000.
3. The nominal rate of interest is decreased from 14% to 9%.
4. The maturity date is extended from December 31, 20x1 to January 1, 20x6. The principal is due lump sum at maturity date but interest is payable annually at each year-end. The original effective rate is 14%. The prevailing rate on December 31, 20x1 is 12%.
Required - Provide the entry to record the modification of the loan.
PROBLEM 2 - On January 1, 20x1, an entity issues bonds with face amount of P5,000,000 for P5,200,000. The bonds mature on December 31, 20x3 and pay annual interest of 12%. The bonds can be converted into 10,000 ordinary shares of the entity with a par value per share of P200. O January 1, 20x1, the bonds are selling at 101 without conversion feature. The effective interest rate on bonds is 10%. All of the bonds are converted into ordinary shares on January 1, 20x3.
Required - Provide the entries:
1. On January 1, 20x1 to record the issuance of the convertible bonds.
2. On January 1, 20x3 to record the conversion of the bonds.
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