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Chapter 9 - Debt Restructure (FAR6)

The document contains 3 problems related to accounting for gains on extinguishment of debt. Problem 1 involves a bank loan and accrued interest that is less than the value of land and building assets. Problem 2 involves notes payable and accrued interest that is less than the value of inventory assets. Problem 3 involves a mortgage payable and accrued interest that is extinguished in exchange for shares and share premium at different share prices.

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50 views

Chapter 9 - Debt Restructure (FAR6)

The document contains 3 problems related to accounting for gains on extinguishment of debt. Problem 1 involves a bank loan and accrued interest that is less than the value of land and building assets. Problem 2 involves notes payable and accrued interest that is less than the value of inventory assets. Problem 3 involves a mortgage payable and accrued interest that is extinguished in exchange for shares and share premium at different share prices.

Uploaded by

Honeylet Sigesmundo
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 PDF, TXT or read online on Scribd
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PROBLEM 1 (C9)

1. Bank loan payable 5,000,000


Accrued Interest 1,000,000
Total Liability 6,000,000
Less: Current Asset
Land 1,500,000
Building (6,000,000 - 1,800,000) 4,200,000 5,700,000
Gain on extinguishment of debt 300,000

2. Bank loan payable 5,000,000


Accrued interest 1,000,000
Accumulated depreciation - Building 1,800,000
Building 6,000,000
Land 1,500,000
Gain on extinguishment of debt 300,000

PROBLEM 2 (C9)

Notes payable 6,000,000


Accrued Interest payable 600,000
Total liability 6,600,000
Less: Carrying amount of Inventory 3,000,000
Gain on extinguishment of debt 3,600,000

Note payable 6,000,000


Accrued Interest payable 600,000
Inventory 3,000,000
Gain on extinguishment of debt 3,600,000

PROBLEM 3 (C9)

1. Mortgage payable 5,000,000


Accrued interest payable 500,000
Share capital 3,500,000
Share premium (35,000 x (130-100=30)) 1,050,000
Gain on extinguishment of debt 950,000

Mortgage payable 5,000,000


Accrued interest payable 500,000
Carrying amount of mortgage payable 5,500,000
Less: Fair value of the share capital (35,000 x 130/share) -4,550,000
Gain on extinguishment of debt 950,000

2. Mortgage payable 5,000,000


Accrued interest payable 500,000
Share capital 3,500,000
Share premium 1,200,000
Gain on extinguishment of debt 800,000

Fair value of the mortgage


payable 4,700,000
Less: par value of the shares issued (35,000 x 1,000) -3,500,000
Share premium 1,200,000

Mortgage payable 5,000,000


Accrued interest payable 500,000
Carrying amount of mortgage payable 5,500,000
Less: Fair value of the liability -4,700,000
Gain on extinguishment of debt 800,000

3. Mortgage payable 5,000,000


Accrued interest payable 500,000
Share capital 3,500,000
Share premium 2,000,000

Mortgage payable 5,000,000


Accrued interest payable 500,000
Carrying amount of mortgage payable 5,500,000
Less: Fair value of the liability (35,000 x 100) 3,500,000
Share premium 2,000,000

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