On December 31, 2021, The Essence Finance Company had P5,000,000 note receivable from Galena Company. The note bears 10% interest. The books reported accrued interest of P500,000 on this date. Because of financial distress being suffered by Galena Company, Essence Finance agreed to the restructuring and modification of the terms of its loan as follows: reduction of principal to P4,000,000; reduction of interest to 8% payable annually beginning Dec 31, 2022; accrued interest on December 31, 2021 is condoned and the principal payment was reset to December 31, 2024. How much is impairment loss should Essence Finance record on December 31, 2021?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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On December 31, 2021, The Essence Finance Company had P5,000,000 note receivable from
Galena Company. The note bears 10% interest. The books reported accrued interest of
P500,000 on this date. Because of financial distress being suffered by Galena Company,
Essence Finance agreed to the restructuring and modification of the terms of its loan as
follows: reduction of principal to P4,000,000; reduction of interest to 8% payable annually
beginning Dec 31, 2022; accrued interest on December 31, 2021 is condoned and the
principal payment was reset to December 31, 2024. How much is impairment loss should
Essence Finance record on December 31, 2021?
Transcribed Image Text:On December 31, 2021, The Essence Finance Company had P5,000,000 note receivable from Galena Company. The note bears 10% interest. The books reported accrued interest of P500,000 on this date. Because of financial distress being suffered by Galena Company, Essence Finance agreed to the restructuring and modification of the terms of its loan as follows: reduction of principal to P4,000,000; reduction of interest to 8% payable annually beginning Dec 31, 2022; accrued interest on December 31, 2021 is condoned and the principal payment was reset to December 31, 2024. How much is impairment loss should Essence Finance record on December 31, 2021?
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