On December 31, 2017, ABC Bank enters into a debt restructuring agreement with XYZ INC, which is now experiencing financial trouble. XYZ'S market rate of interest is 15%. The bank agrees to restructure a 12%, issued at par, P3,000,000 note receivable by the following modifications: Reducing the principal obligation from P3,000,000 to P2,400,000. Extending the maturity date from December 31, 2017, to January 1, 2021. Reducing the interest rate from 12% to 10%. XYZ INC pays interest at the end of each year. On January 1, 2021, XYZ INC pays P2,400,000 in cash to ABC Bank. 1. Determine the fair value of the restructured notes payable. 2. Determine the carrying value of the note on December 31, 2019. 3. How much should be recognized as interest expense on December 31, 2019?
On December 31, 2017, ABC Bank enters into a debt restructuring agreement with XYZ INC, which is now experiencing financial trouble. XYZ'S market rate of interest is 15%. The bank agrees to restructure a 12%, issued at par, P3,000,000 note receivable by the following modifications:
Reducing the principal obligation from P3,000,000 to P2,400,000.
Extending the maturity date from December 31, 2017, to January 1, 2021.
Reducing the interest rate from 12% to 10%.
XYZ INC pays interest at the end of each year.
On January 1, 2021, XYZ INC pays P2,400,000 in cash to ABC Bank.
1. Determine the fair value of the restructured notes payable.
2. Determine the carrying value of the note on December 31, 2019.
3. How much should be recognized as interest expense on December 31, 2019?
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