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What the interest income to be recognized is

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Grey Company holds an overdue note receivable of P800,000 plus recorded  accrued interest of P64,000. The effective interest rate is 8%. As a result of a court-imposed settlement on December 31, 2018, Grey agreed to the following restructuring arrangement:

  • Reduced the principal obligation to P600,000.
  • Forgave the P64,000 of accrued interest.
  • Extended the maturity date to December 31, 2020.
  • Annual interest of P40,000 is to be paid to Grey on December 31, 2019 and 2020.

The present value of the interest and principal payments to be received by Grey Company discounted for two years at 8% is P585,734.

Problem 1: The interest income to be recognized in 2019 is

Group of answer choices

Option 1: P 0

Option 2: P46,859

Option 3: P40,000

Option 4: P64,000

Reference no: EM132676605

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