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What is the gain on extinguishment of debt to be recognized

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Question - Granada Company has an overdue 8% note payable to First bank at P8,000,000 and accrued interest of P 640,000. As a result of a restructuring agreement on January 1, 2011, First Bank agreed to the following provisions:

The principal obligation is reduced to P 7,000,000.

The accrued interest of P 640,000 is forgiven.

The date of maturity is extended to December 31, 2014.

Annual interest of 10% is to be paid for 4 years every December 31.

Required -

1. What is the gain on extinguishment of debt to be recognized for 2011?

a. P 1,000,000

b. P 1,178,000

c. P 1,640,000

d. P 538,000

2. What is the interest expense to be recognized for 2011?

a. P 746,200

b. P 700,000

c. P 596,960

d. P 640,000

Reference no: EM132973257

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