Reference no: EM133189102
Questions -
Q1. AMY CORPORATION is having financial difficulty and therefore has asked Penny Bank to restructure its P3 million note outstanding. The present note has 3 years remaining and pays a current rate of interest of 12%. The note was issued at its face value.
Penny Bank agrees to accept land in exchange for relinquishing its claim on this note; The land has a book value of P2,000,000 and a fair value of P2,500,000. Prepare the journal entry that Amy would make for the debt restructuring.
Q2. AMY CORPORATION is having financial difficulty and therefore has asked Penny Bank to restructure its P3 million note outstanding. The present note has 3 years remaining and pays a current rate of interest of 12%. The note was issued at its face value.
Penny Bank agrees to reduce the principal balance due to P2,000,000 and interest rate to 10%.
The following present value factors are abstracted from the present value tables.
Present Value of 1 for 3 periods 12% 10%
Present value of an ordinary annuity of 1 0.71178 0.75132
For 3 periods 2.40183 2.48685
Prepare the journal entry that Amy would make for the debt restructuring. Provide solution for the amounts.
Q3. On December 31, 2016, LEONARD COMPANY acquired a piece of equipment from KOTARO Company by issuing a P1,00,000 note, payable in full on December 31, 2020. Leonard's credit rating permits it to borrow funds from its several lines of credit at 10%. The equipment is expected to have a 5-year life and a P150,000 salvage value. The present value of 1 at 10% for 4 periods is 0.68301. What is the equipment's book value on December 31, 2018?
a. P551,767
b. P469,806
c. P491,767
d. P630,000
Q4. On December 31, 2016, LEONARD COMPANY acquired a piece of equipment from KOTARO Company by issuing a P1,00,000 note, payable in full on December 31, 2020. Leonard's credit rating permits it to borrow funds from its several lines of credit at 10%. The equipment is expected to have a 5-year life and a P150,000 salvage value. The present value of 1 at 10% for 4 periods is 0.68301. What is the carrying value of the note at December 31, 2018?
a. P1,090,903
b. P991,730
c. P826,442
d. P819,612
Q5. The long-term debt section of EDNA COMPANY's statement of financial position as of December 31, 2015, included 9% bonds payable of P400,000, less unamortized discount of P32,000. Further examination revealed that these bonds were issued to yield 10%. The amortization of the bond discount was recorded using the effective interest method. Interest was paid on January 1 and July 1 of each year. On July 1, 2016, Elmo retired the bonds at 105 before maturity.
a. P52,400
b. P20,000
c. P0
d. P51,600
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