Grey Company has an overdue 8% note payable to City Bank at P8,000,000 and recorded accrued interest of P640,000. As a result of a settlement on January 1, 2017, City Bank agreed to the following restructuring agreement:

a. Reduced the principal obligation to P7,000,000. b. Forgave the P640,000 accrued interest. c. Extended the maturity date to December 31, 2018. d. Annual interest of 10% is to be paid on December 31, 2017 and 2018. The present value of 1 at 8% for two periods is 0.8573, and the present value of an ordinary annuityof 1 at 8% for two periods is 1.7833.

Prepare journal entries for 2017 and 2018 to record the modification of terms