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a.) On October 1, 2020, how much should TRUE recognize as gain or loss on extinguishment? b.) How much should TRUE recognize as interest expense
a.) On October 1, 2020, how much should TRUE recognize as gain or loss on extinguishment?
b.) How much should TRUE recognize as interest expense for the year ended, December 31, 2021?
Due to the covid-19 pandemic, TRUE has experienced extreme financial pressure and has been in default in meeting interest payment on a long term note of P6,000,000 due on October 1, 2021. The interest rate is 12% payable every October 1. The accrued interest payable on October 1, 2020 is 720,000. In an agreement with PITY, the creditor, the entity obtained the following changes in the terms of note: The accrued interest on October 1, 2020 is forgiven The principal is reduced by P500,000 The new interest rate is 9% payable every October 1 The new date of maturity is October 1, 2025 The present values are as follow: PV of 1 for 5 periods PV of an ordinary annuity for 5 periods @ 9% 0.6499 3.8897 @ 12% 0.5674 3.6048
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