Reference no: EM132719078

Question: 1. Included in DAO Corporation's liability account balances at December 31, 20x6 was a Note payable for 2,800,000. The principal amount of the note payable is $2,800,000 and bears interest at 15%. The note is dated April 1, 20x6 and is payable in four equal installments of $700,000 beginning April 1, 20x7. The first principal and interest payment was made on April 1, 20x7.

a. Determine the non-current portion of the note payable as of December 31, 20x7.

b. Determine the interest expense for 20x7.

2. At the beginning of current year, BRIT Company issued 5,000 convertible bonds payable. The bonds have a three-year term and are issued at 110 with a face amount of $1,000 per bond. Interest is payable annually in arrears at a nominal 6% interest rate. Each bond is convertible at anytime up to maturity into 100 ordinary shares with par value of P5. When the bonds are issued, the prevailing market interest rate for similar debt instrument without conversion option is 9%. The present value of 1 at 9% for 3 periods is .77 and the present value of an ordinary annuity of 1 at 9% for 3 periods is 2.53. What amount should be reported as equity component of the original issuance of the convertible bonds payable?

3. Whale Company is experiencing financial difficulty and is negotiating debt restructuring with its creditor to relieve its financial stress. Whale has a $2,500,000 bank loan payable with BIP Bank. The bank accepted an equity interest in Whale Company in the form of 200,000 ordinary shares quoted at $12 per share. The par value is $10 per share. The fair value of the bank loan payable on the date of restructuring is $2,200,000. What amount should be recognized as gain from debt extinguishment as a result of the equity swap?