Reference no: EM132872209

Questions -

Q1) Kakao Company had bonds payable with face amount of P5,000,000 and a carrying amount of P4,800,000.

In addition, unpaid interest on the bonds was accrued in the amount of P250,000.

The creditor agreed to the settlement of the bonds payable in exchange for 50,000 shares of P50 par value.

The shares have a current market value of P4,500,000. The fair value of the bonds payable is P4,600,000.

Requirements - Prepare journal entry on the books of Kakao Company to record the settlement of the bonds payable:

a) If the fair value of the equity instruments is used.

b) If the fair value of the bonds is used.

c) If the carrying amount of the financial liability is used.

Q2) Due to extreme financial difficulties, Lili Company had negotiated a restructuring of a 10% P5,000,000 note payable due on Dec. 31, 2020. The unpaid interest on the note on such date was P500,000.

The creditor agreed to reduce the face amount to P4,000,000, forgive the unpaid interest, reduce the interest rate to 8% and extend the due date three years from Dec. 31, 2020.

The present value of 1 at 10% for three periods is 0.75 and the present value of an ordinary annuity of 1 at 10% for three periods is 2.49.

Requirements -

a) Compute the Gain or Loss on Extinguishment for 2020.

b) Compute the Premium/Discount on Note Payable on Dec. 31, 2020.

c) Compute the Premium/ Discount on Note Payable on Dec. 31, 2021.

d) Compute the Carrying Amount of Note Payable on Dec. 31, 2022.

e) Journal Entries from 2020 - 2022.

Q3) Due to adverse economic circumstances and poor management, Netherlands Company had negotiated a restructuring of a 9% P6,000,000 note payable to Northern Bank due on Jan. 1, 2020. There was no accrued interest on the note on Jan. 1, 2020.

The bank reduced the principal obligation from P6,000,000 to P5,000,000 and extended the maturity to three years on Dec. 31, 2022.

However, the new interest rate is 13% payable annually every Dec. 31.

The present value of 1 at 9% for three periods is .77 and the present value of an ordinary annuity of 1 at 9% for three periods is 2.53.

Requirements -

a) Compute the Gain or Loss on Modification for 2020.

b) Compute the Interest Expense on Note Payable on Dec. 31, 2020.

c) Compute the Interest Expense on Note Payable on Dec. 31, 2021.

d) Compute the Carrying Amount of Note Payable on Dec. 31, 2022.

e) Journal Entries from 2020 - 2022.