Reference no: EM132908053

On December 31, 2021, Mocha Company was indebted to Melon Co. On a P2,000,000, 10% note. Only interest had been paid to date. Due to its financial difficulties, Mocha Company has negotiated a restructuring of its notes payable. The parties agreed that Mocha Company would settle the debt on the following terms:

• Settle one-half of the note by transferring land with a recorded value of P800,000 and a fair value of P900,000.
• Settle one-fourth of the note by transferring 200,000 shares of P1 par ordinary shares with a fair value of P1.80 per share. 
• Modify the terms of the remaining one-fourth of the note by reducing the interest rate to 5%, extend the due date three years from the date of restructuring and reducing the principal to P300,000.

Problem 1: Compute the total gains on extinguishment of debt to be recognized in profit or loss?

Problem 2: Compute the interest expense in 2022?

Problem 3: Compute the carrying amount of the note payable as of December 31, 2022?