Problem 9-10 (AICPA Adapted) On January 1, 2021, Sunrise Company was experiencing extreme financial pressure and was in default in meeting interest payment on a long term note of P6,000,000 due on December 31, 2021. The interest rate is 12% payable every December 31. The accrued interest payable on January 1, 2021 is P720,000. In an agreement with the creditor, the entity obtained the
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INTERMEDIATE ACCOUNTING 2
DEBT RESTRUCTURE
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- Interest-Bearing and Non-Interest-Bearing Notes On December 11, 2019, Hooper Inc. made a credit sale to Marshall Company and required Marshall to sign a 12,000,60-day note. Required: Prepare the journal entries necessary to record the receipt of the note by Hooper, the accrual of interest on December 31, 2019, and the customers repayment on February 9, 2020, assuming: 1. Interest of 12% was in addition to the face value of the note. 2. The note was issued as a 12,000 non-interest-bearing note with a present value of 11,765. The implicit interest rate on the note receivable was 12%. Assume a 360-day year. (Round to the nearest dollar.)Marmol Corporation uses the allowance method for bad debts. During 2019, Marmol charged 50,000 to bad debt expense and wrote off 45,200 of uncollectible accounts receivable. These transactions resulted in a decrease in working capital of: a. 0 b. 4,800 c. 45,200 d. 50,000Non-Interest-Bearing Notes Payable On November 16, 2019, Clear Glass Company borrowed 20,000 from First American Bank by issuing a 90-day, non-interest-bearing note. The bank discounted this note at 12% and remitted the difference to Clear Glass. Required: 1. Prepare the journal entries of Clear Glass to record the preceding information, the related calendar year-end adjusting entry, and payment of the note at maturity. 2. Show how the preceding items Would be reported on the December 31, 2019, balance sheet. 3. Next Level What is Clear Glass Companys effective interest rate?
- Restructuring (Debtor) Oakwood Corporation is delinquent on a 2,400,000, 10% note to Second National Bank that was due January 1, 2019. At that time, Oakwood owed the principal amount plus 34,031.82 of accrued interest. Oakwood enters into a debt restructuring agreement with the bank on January 2, 2019. Required: Prepare the journal entries for Oakwood to record the debt restructuring agreement and all subsequent interest payments assuming the following independent alternatives: 1. The bank extends the repayment date to December 31, 2022, forgives the accrued interest owed, reduces the principal by 200,000, and reduces the interest rate to 8%. 2. The bank extends the repayment date to December 31, 2022, forgives the accrued interest owed, reduces the principal by 200,000, and reduces the interest rate to 1%. 3. The bank accepts 160,000 shares of Oakwoods 55 par value common stock, which is currently selling for 14.50 per share, in full settlement of the debt. 4. The bank accepts land with a fair value of 2,300,000 in full settlement of the debt. The land is being carried on Oakwoods books at a cost of 2,200,000.extreme financial pressure and is in default in meeting interest payment on its long-term note of P6,000,000 due on December 31, On December 31, 2019, Guimaras Corporation is experienc 2019. The interest rate is 10% payable every December 31. In an agreement with the creditor, Guimaras Corporation obtained the following changes in the terms of the note: The accrued interest of P600,000 on December 31, 2019 is forgiven. The new interest rate is 12%, which approximates the prevailing rate of interest for similar obligation at the time of the restructuring. The new date of maturity is December 31, 2024. What is Guimaras Corporation's gain on debt restructuring? (Round of present value factors to three decimal points) P1,032,720 P 602,400 P 151,200 P O а. b. с. d.Problem 8:On January 1 2019, Sunrise Company is experiencing extreme financial pressure and is in default in meeting interest payment on its long term note of P6,000,000 due on December 31, 2020. The interest rate is 12% payable every December 31. The accrued interest payable on January 1, 2019 is P720,000.In the agreement with the creditor, Sunrise Company obtain the following changes in the terms of note:a. The accrued interest on January 1, 2019 is forgiven.b. The principal is reduced by P500,000.c. The new interest rate is 8% payable in every December 31.d. The new date of maturity is December 31, 2022.The present value of 1 at 12% for four period is 0.6355 and the present value of an ordinary annuity of 1 at 12% for four period is 3.0373.Required:1. Journal entry to record the modification of terms on January 1, 2019.2. Journal entry to record the interest payment and amortization of discount for 2019.___________________________________________________________________________
- On December 31, 2021, LOL Company is experiencing extreme financial pressure and is in default in meeting interest payment on its long-term note of P7,000,000 due on December 31, 2021. The interest rate is 10% payable every December 31. In an agreement with the creditor, LOL obtained the following changes in the terms of the note: * The accrued interest of P700,000 on December 31, 2021 is forgiven. The principal is reduced by P1,000,000. * The new interest rate is 8%. The new date of maturity is December 31, 2026. At the time of restructuring, the market rate of interest was 10%. What is LOL Company's gain on debt restructuring?1. The following selected transactions relate to liabilities of Fairfox Inc., for portions of 2021. Fairfox's fiscal year ends on December 31. 2021 a) April 1 Arranged a short-term line of credit with Belize Bank amounting to $20,000,000 at the bank's prime rate of 12%. The company will pay no commitment fees for this arrangement. b) July5 Received a $75,000 refundable deposit from a major customer for mailing containers used to transport the company's equipment. c) Oct. 17 Received most of the mailing containers covered by the refundable deposit and a letter stating that the customer will retain containers represented by $12,000 of the deposit and therefore does not request a refund for that amount. The cost of the forfeited containers was $4,500. d) Aug. 1 Borrowed $7 million cash from Belize Bank under the line of credit arranged in March and issued a ten-month promissory note. Interest at the prime rate of 12% was payable at maturity. e) Dec. 31 Recorded appropriate adjusting…On January 1 2019, Sunrise Company is experiencing extreme financial pressure and is in default in meeting interest payment on its long term note of P6,000,000 due on December 31, 2020. The interest rate is 12% payable every December 31. The accrued interest payable on January 1, 2019 is P720,000. In the agreement with the creditor, Sunrise Company obtain the following changes in the terms of note: a. The accrued interest on January 1, 2019 is forgiven. b. The principal is reduced by P500,000. c. The new interest rate is 8% payable in every December 31. d. The new date of maturity is December 31, 2022. The present value of 1 at 12% for four period is 0.6355 and the present value of an ordinary annuity of 1 at 12% for four period is 3.0373. Required: 1. Journal entry to record the modification of terms on January 1, 2019. 2. Journal entry to record the interest payment and amortization of discount for 2019.
- Problem 9-18 (AICPA Adapted) On January 1, 2021, Granada Company had an overdue 10% note payable to First Bank at P8,000,000 and accrued interest payable of P800,000. As a result of a restructuring agreement on January 1, 2021, First Bank agreed to the following provisions: The principal obligation is reduced to P6,000,000. The accrued interest of P800,000 is forgiven. The date of maturity is extended to December 31, 2024. Annual interest of 12% is to be paid for 4 years every December 31. The present value of 1 at 10% for 4 periods is 0.68 and the present value of an ordinary annuity of 1 at 10% for 4 periods is 3.17. The market rate of interest for similar note is 9%. The PV of 1 at 9% for 4 periods is .71 and the PV of an ordinary annuity of 1 at 9% for 4 periods is 3.24. · 1. What amount should be reported as present value of the new note payable on January 1, 2021?. а. 6,592,800 b. 6,000,000 c. 6,362,400 d. 4,260,000 2. What amount should be reported as gain on extinguishment of…On December 31, 2019, Guimary Corporation is experiencing extreme financial pressure and is in default in meeting interest payment on its long-term note of P6,000,000 due on December 31, 2019. The interest rate is 10% payable every December 31. In an agreement with the creditor, Guimary Corporation obtained the following changes in the terms of the note: The accrued interest of P600,000 on December 31, 2019 is forgiven. The principal is reduced by P1,000,000. The new interest rate is 12%. The new date of maturity is December 31, 2024. At the time of restructuring, the market rate of interest was 10%. What is Guimary Corporation's gain on debt restructuring? P1,979,180 P1,600,000 P1,221,020 a. b. c. d. POwhat is notes recievable for On December 31;2025, Blue Inc. rendered services to Beghun Corporation at an agreed price of $106,641, accepting $41,800 down and agreeing to accept the balance in four equal installments of $20,900 receivable each December 31 . An assumed interest rate of 11% is imputed. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.