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: v The accrued interest on October 1, 2020 is forgiven v The principal is reduced by P500,000 v The new interest rate is 9% payable every October 1 v The new date of maturity is October 1, 2025 v The present values are as follow: @ 9% @ 12% PV of 1 for 5 periods 0.6499 0.5674 PV of an ordinary annuity for 5 periods 3.8897 3.6048
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: v The accrued interest on October 1, 2020 is forgiven v The principal is reduced by P500,000 v The new interest rate is 9% payable every October 1 v The new date of maturity is October 1, 2025 v The present values are as follow: @ 9% @ 12% PV of 1 for 5 periods 0.6499 0.5674 PV of an ordinary annuity for 5 periods 3.8897 3.6048
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
How much should TRUE recognize as interest expense for the year ended, December 31, 2021?
Transcribed Image Text: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
v 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:
@ 9%
@ 12%
PV of 1 for 5 periods
0.6499
0.5674
PV of an ordinary annuity for 5 periods
3.8897
3.6048
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