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What is the present value of the modified note payable

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Reference no: EM132808293

On January 1, 2020, Esther Company is experiencing financial difficulties and is in default in meeting interest payment on a long-term note of P30,000,000 due on December 31, 2021.

The interest rate is 12% payable every December 31. The accrued interest payable on January 1, 2020 is P3,600,000. In an agreement with the creditor, the company obtained the following modifications in the terms of the note:

  1. The accrued interest on January 1, 2020 is waived.
  2. The principal amount is reduced by 10%.
  3. The new interest rate is 8% payable every 31.
  4. The new date of maturity is December 31, 2023.

Problem 1: What is the present value of the modified note payable on January 1, 2020?

Problem 2: What is the gain on modification of debt to be recognized for 2020?

Reference no: EM132808293

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