On December 31, 2010, EEEE Company was indebted to AFE Company on a P2,000,000, 10% note. Only interest had been paid to date. Due to its financial difficulties, EEEE Company has negotiated a restructuring of its note payable. The parties agreed that EEEE 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 market value of P15 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.

1. What is the carrying amount of the note payable as of December 31, 2011?

Choices: 142,494

300,000

273,963

262,694

2. What is the total gain on extinguishment of debt?

Choices:

550,006

337,306

-0-

437,306

3. What is the gain on extinguishment of debt on the P1 million note?

Choices:

200,000

26,269

300,000

7,500

4. What is the interest expense in 2011?

13,134

15,000

-0-

100,000