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Quiz 2 Problem 1

Debtor Company restructured its debt with Creditor Company, reducing the principal by $1.2 million and waiving $3 million in accrued interest. The obligation now matures in 2020 at an annual interest rate of 12%. Debtor Company received land worth $4.5 million from Creditor Corp to settle a $3 million note and $180,000 in accrued interest from 2017. The land is carried on Debtor's books at $1.5 million. Peter Store discounted a 6-month, 10% customer note for $600,000 at a bank at a 12% discount rate on June 30, 2017. The bank charged protest fees of $5,000

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Jerah Marie Pepito
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35 views

Quiz 2 Problem 1

Debtor Company restructured its debt with Creditor Company, reducing the principal by $1.2 million and waiving $3 million in accrued interest. The obligation now matures in 2020 at an annual interest rate of 12%. Debtor Company received land worth $4.5 million from Creditor Corp to settle a $3 million note and $180,000 in accrued interest from 2017. The land is carried on Debtor's books at $1.5 million. Peter Store discounted a 6-month, 10% customer note for $600,000 at a bank at a 12% discount rate on June 30, 2017. The bank charged protest fees of $5,000

Uploaded by

Jerah Marie Pepito
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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QUIZ 2

PROBLEM 1

Debtor Company is indebted to the Creditor Company for P15,000,000 on December 31,
2018.The principal and accrued interest of 3,000,000 are long overdue. The interest on the note is 10%.
Debtor Company for the restricting of the obligation. The results of the negotiation are:

a. The principal obligation is reduced by P1,200,000


b. The accrued interest of P3,000,000 is waived
c. The obligation will mature on December 31, 2020
d. Debtor Company shall pay an annual interest of 12%

The present value of 1 at 10% for two periods is 0.8264 and the present value of an ordinary
annuity of 1 at 10% for two periods is 1.7355.

1. How much gain on debt restructuring should Debtor Company recognize on December
31, 2018?
2. The premium on note payable-new to be recorded on December 31, 2018 is
3. The premium amortization for 2019 is

PROBLEM 2

2018
01/01 Bought a machine from Cebu Co. In lieu of cash payment, Davao gave Cebu a 3 year,
8% , P1,500,000, note payable. Principal is due on December 31, 2020 but interest is
due annually every December 31.
01/01 Acquired a machine from Liloan Co. In lieu of cash payment, Davao gave Liloan a 3
year, 10%, P2,500,000 interest bearing note payable. The interest is payable every
December 31 while the principal shall be payable as follows:
December 31, 2018 - P1,500,000
December 31, 2019 - P 400,000
December 31, 2020 - P 600,000
01/01 Acquired a land from Carcar Co. Davao gave Carcar a 4-year, P2,000,000 non-interest
bearing note payable due on December 31, 2021. The prevailing rate of interest for
this type is 8%.
01/01 Borrowed cash from Poro Inc. Davao gave Poro a 3 –year P3,000,000, 12% interest
bearing note. Principal is payable on December 31, 2021. Poro deducted the interest in
advance.
01/01 Acquired a machine from Danao Inc. Davao issued a 3-year non-interest bearing note,
P1,800,000 which is payable in 3 equal installments starting December 31, 2018. The
prevailing interest rate is 12%

1. What is the entry to record the acquisition of machinery from Cebu Co.?
2. What is the entry to record the acquisition of machinery from Liloan Company?
3. What is the entry to record the acquisition of land from Carcar Company?
4. What is the entry to record the borrowings from Poro Inc.?
5. What is the entry to record the acquisition of machinery from Danao Inc.?
6. How much is the interest expense for the notes payable to Cebu Co. for the year 2018?
7. How much is the discount/premium amortization for the notes payable to Cebu Co. for the year
2018?
8. How much is the interest expense for the notes payable to Liloan Company for the year 2018?
9. How much is the discount/premium amortization for the notes payable to Liloan Company for
the year 2018?
10. How much is the interest expense for the notes payable to Carcar Co. for the year 2018?
11. How much is the discount/premium amortization for the notes payable to Carcar Co. for the
year 2018?
12. How much is the interest expense for the notes payable to Poro Company for the year 2018?
13. How much is the discount/premium amortization for the notes payable to Poro Company for the
year 2018?
14. How much is the interest expense for the notes payable to Danao Inc. for the year 2018?
15. How much is the discount/premium amortization for the notes payable to Danao Inc. for the
year 2018?
16. What is the Carrying Amount of the notes payable to Cebu Co. as of December 31, 2019?
17. What is the Carrying Amount of the notes payable to Liloan as of December 31, 2019?
18. What is the Carrying Amount of the notes payable to Carcar as of December 31, 2019?
19. What is the Carrying Amount of the notes payable to Poro as of December 31, 2019?
20. What is the Carrying Amount of the notes payable to Danao as of December 31, 2019?

PROBLEM 3

Debtor Company is indebted to Creditor Corp. under a P3,000,000, 12%, 3-year note dated
December 31, 2015. Because of Debtor’s financial difficulties developing in 2017, Debtor owed
accrued interest of P180,000 on the note at December 31, 2017. Under a troubled debt
restructuring on December 31, 2017, Creditor agreed to settle the note and accrued interest for a
tract of land having a fair value of P4,500,000. The land is carried at Debtor’s books at its historical
cost of 1,500,000.

What is the amount of gain on debt restructuring should Debtor recognize in 2017?

PROBLEM 4

On June 30, 2017, Peter Store discounted at a bank a customer’s P600,000, 6-month, 10% note
receivable dated April 30, 2017. The bank discounted the note at 12% on the same date.

1. What should be the amount of proceeds?


2. If discounting is treated as sale, what is the loss on discounting?
3. If discounting is treated as borrowing, what is the loss on discounting?
4. If discounting is treated as borrowing, what is the interest expense on discounting on June
30?
5. If the note was discounted without recourse, what is the loss on discounting?
6. Assuming the customer defaulted on the note and failed to pay the bank, how much should
Peter pay the bank on maturity if the bank charged P5,000 protest fees?

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