CHAPTER 5 PROVISION AND CONTINGENT ‘LIABILITY Problem 5-1 (IFRS) ; ‘During the current: ‘Odyssey Company is the defendant ina patent inf rw The entity's lawyers believe there isa 30% chance thatthe court wll dismiss the case and the entity will incurno outflow of ‘economic benefits. However, ifthe :ourt rules in favor of the cai that there sa 20% “hance that the entit of P200,000 and en 80% chance that damages of P100,000. Other outcomes: imant, the lawyersbelieve required to pay damages ‘will be required to pay flowestimates. : ‘Anappropriate discount rate is 5% per year. The present value of I at 5% for one period is 0.95. What amount should be reported as provision at current year-end? ey Problem 5-2 (IFRS) During the current year, bya Companyisthe defendant ina beach of patent lawsuit. The lawyers believe there is an 80% chance that the ate dl not amis the case andthe entity wil ncuroutlow of benefits Ifthe courtrules in favor ofthe claimant, the lawyers believe that there ce that the entity will be required to pay damages of ‘240% chance that the entity will be required to pay (000. Other amounts of damages are unlikely. “The courtis expected to ru in ate December next year. There is no indication thatthe claimant will settle out of court. ‘A Tiriskadjustment factor to the cash flowsis considered appropriate {oreflect the uncertainties in the cash flow estimates. “Anappropriatediscountrates 10% per year. The present value of | at 10% forone periodis 0.91. ‘What amount should be reported as provision at current year-end? 80% 960,000 30% 320,000 1,280,000 istment factor (100% + 7%) “ 1.07 1, 10% for one period Poet Present value of ish flows 1246336 6ha Problem 5-3 (AICPA Adapted) Asa result of the supplier's bankruptcy, the entity entered into a contract in December to retool its machines so that the entity could accept parts from other suppliers. Retooling costs are estimated to be P300,000. What amount should be reported as liability at current year-end? ‘Solution 5-3 Answer a ‘The guarantee should be accrued as a provision because the loss is probable and the amount can be reasonably estimated, Problem 5-4 (AICPA Adapted) On February 5, 2024, an employee filed a P2,000,000 lawsuit against Steel Company for damages suffered when the Steel Company's plant exploded on December 29, 2023. The legal counsel believed the entity would probably lose the lawsuit andettimaed th os fo be P300.000 The employee offered to settle the lawsuit out of court for P900,000 but the entity did not agree to the settlement, On December 31, 2023, what amount should be reported as liabilit from lawsuit? ” Solution 5-4 Answer d The loss is accrued as a provision because itis probable and the amount can be reasonably estimated. 62 Problem 5-5 (AICPA Adapted) . ing the current year, Beal Company became involved in a tas arg ith he BIR. On December 37 the tax advisor believed that an unfavorable outcome was probable and a reasona! le mal taxes was P500,000. ; ‘the current financial statements were issued, the entity fered and aczepted a BIR seitiement offer of P550,000. ‘What amount of accrued liability should be reported on December 31? ProblemS-6 (IAA) ‘Newton Company is involved in litigation regarding a faulty product ‘old in a prior year. The entity has consulted with an artomey and determined that itis possible thatthe entity may lose the case. ‘The attorney estimated that there is a 40% chance of losing. If this is the case, the atiomey estimated that the amount of any payment would be 5,000,000. * ‘What s the required journal entry asa result ofthis litigation? a. Debitlitigation expense and credit litigation liability P5,000,000. b._ No journal entry is required. ¢ Debitltigation expense and credit litigation liability P2,000,000. 4. Debitlitigation expense and credit litigation liability P3,000,000. Solution 5-6 Answer b ‘The possible loss is only disclosed as a contingent liability since the lossis 40%. The probability ofloss should be more ic inorderto besccruedass provisicn, oud bemorethan 63Problem 5-7 (AICPA Adapted) ~ Solution 5-7 Answer ¢ Midpoint of the range (200,000 + 450,000/2) Problem 5-8 (IAA) Winter Company is being: result of negligence on the e tobe exposed to highly toxi The entity's lawyer stated the suitand be found liable. from P1,200,000 to P6,000,000. However, truck was inan accident received notice on ‘damages for personal 325,000 the most probable cost is P3,600,000. ‘What amount should be accrued and disclosed? - &. Aceruea loss contingency of P1,200,000 and disclose an additional contingency of P4,800,000. b. Accruea loss contingency of P3,600,000 and disclose an additional contingency of P2,400,000. -y of P3,600,000 but not disclose any ¢. Accrue a loss contingene additional contingency. d. No loss accrual but disclose a contingency of P1,200,000 to 6,000,000. Solution 5-8 Answer b oS Problem 5-9 (AICPA Adapted) ‘On Novembet 25, 2023, an explosion i ‘damage nt causing extensive property damage 10 5 occurred at a Rex Company to area buildings. By Yo, 2024, claims had been: iy. ‘management it je that the and counsel concluded that itis probable Son: Te mryould be responsible for damages and that 3,500,000 is @ SRomableesimateofthe abil: ny policy has ‘Company's 10,000,000 comprehensive public ability policy| Rex Corry ble clause. The financial statements were ssued On March 31, 2024. 4 1. Whatamount of loss from Iawsuit should be reported for 2023? a. 3,500,000 b. 3,000,000 e, 500,000 a 2, What amount of liability from lawsuit should be reported on December 31, 2023? a, 3,500,000 b. 3,000,000 c. 500,000 d 0 Solution 5-9 Question J Answer ¢ Question 2 Answer a 3,500,000 (500,000) 3,000,000 ‘The amount of_oss is P500,000 only because it isthe extent of liability ofRex under the comprehensive insurance policy. Howeves the amount of ibility tobe reported equa the total PAS 37,paraap 53. provides tha the reimbursement claim shall be The amount of loss maybe presented net of the amount recognized 65See ee eee Problem S-10 (AICPA Adapted) In May 2024, Caso Company filed suit agai ; , pany filed suit against Wayne Company seeking P1,900,000 damages for patent infringement. Acourt verdict in November 2024 awarded Caso P1,500,000 in damages, but ‘Wayne Company's appeal is not expected to be decided’ before 2025, ‘Caso Company's counsel believed itis probable that ‘Caso Company ‘will be successful against Wayne Company foran estimated amount in the range between P800,000 and P1,100,000, with P1.000,000 considered the most likely amount. What amount should Caso Company record as income from the lawsuit for the year ended December 31, 2024? Solution 5-10 Answer d ‘A contingent asset and the related contingent gain are disclosed only where the inflow of economic benefitsis probable. Problem 5-11 (AICPA Adapted) During 2024, Smith: filed suit against West Company seeking damages for heen On 31,2024, Smith ’s legal ounce believed that was probable that Sth Company would successful against West Company foran estimated amount f 1,500,000. On March 1, 2025, Smith Company was awarded 1,000,000 and received fll payment thereof. The 2024 financial statements were issued February 1, 2025. How should the award be reported on December 31.2024? ‘a. Asareceivable and revenue of P1,000,000. b. Asareceivable and deferred revenue of P1,000,000. cc, Asadisclosure of a contingent asset of P1,000,000. d. Asa disclosure of contingent asset of P1 500,000. ‘Solution 5-11 Answer d The contingent asset is disclosed only. Since the case is settled on March 1, 2025 after the issuance of the 2024 financial statements on February 12025, the estimated amount of P1,500,000 shall be disclosed. 66 Problem 5-12 (AICPA Adapted) one Company isthe defendant ina lawsuit filed by Witt Company it 3003 disputing the validity of copyright held by Tone Company: on December 31, 2023, Tone Company determined that witt Company would probably be successful against Tone Company for anestimated amount of P2,000,000. (000,000 loss was acc .ded December 31, 2023. smpany and Witt Company agreed sh payment of P1,250,000 by transfer of Tone Company's ‘Appropriately, a P2, ued by a charge to income for the year en On December 31,2024, Tone Cor to assettlement providing for ca: ‘Tone Company to Witt Company and copyright to Witt Company. ‘The canying amount of the. copyright on Tone Company's accounting records was P250,000 on December 31, 2024. What would be the effect of the settlement on Tone Company's income before tax in 2024? a. 750,000 increase b. 750,000 decrease c. 500,000 increase d. 500,000 decrease Solution 5-12 Answer e ity on December 31, 2023 2,000,000 fon December 31, 2024 (1,250,000) ing amount of copyright transferred (250,000) Gain on settlement in 2024 500,000 ity for lawsuit 2,000,000 1,250,000 250,000 500,000 Gain on settlement of lawsuit 67CO _—S——tesesS—e Problem 5-13 aaa) ‘Problem 5-14 (IAA) Toy Company provided the following facts regarding pending litigation Boume Company provided the following selected transactions related simran? ed Devontingencies The fiscal year ends on December 31, 2023 and financial statements are issued on March 31, 2024. * The entity is defending against a first lawsuit and believed there isa 51%chanceit will lose in court. The entity estimated that damages On February 15, 2024, judgment was rendered against Bourne the range ‘Company in the aroun of P4,000,000 plus interest P500,000. Bourne Compa does notplan to appeal the judgment. management estimated that damages wil of P3,000,000 to P5,000,000 with each amount in that range + Theenttyis defending against a third lawsuit but the probable and relevant loss will only occur far nto the future. The present values, of the endpoints of the range are P1.500,000 and P2,500,000. ‘The management believed the effects of time value of moneyon these amounts are material. + Theenttyis defending against fourth lawsuit and believed there is onlya25%chanceitwilllose in court Ifthe entity loses. management believed damages will fll somewhere in the range of P3,000.000 10 P4,000,000 wit eachamountin the range equally likely to occur ‘What amount should be reported as accrued liability at year-end? 1,000,000 4,000,000 +2,000.000 = ‘No lossis recognized from the lawsuit filed by Accord Company and 7,000,000 from i ‘environmental violation because both are only reasonably possible. 69ae et eB gee Problem 5-15 (LAA) ‘Westem Company provided the following selected transactions related tocontingencies The fiscal year endson December 31.2023. Financia statements are issued on April 1, 2024. * In December 2023. Western Company became aware of an engineering flaw in a product that poses potential risk of injury, ‘Asa result. a product reall appears inevitable. This move would likely cost the entity P1.500,000. water laws. Westem Company lement with the city governmentto pay P4.200,000 in penalties on February 15,2024. * Westem Company is the plaintffina P4,000,000 lawsuit filed against aacustomer for costs and lost profit from contract rejected in 2023. “The lawsuits in final appeal and attorney advised that tis virtually probable that Westem Company will be awarded P3,000,000. 1. Whatamount should bereported as acerued liability on December 31,2023? a. 1,500,000 b. 4,200,000 . 5,700,000 a 0 ‘What amount should be reported as gain from lawsuit in 2023? v 1,500,000 juctive relief 4,200,000 y $,700,000 against the customer is a gain contingency: Contingent gains disclosed only when probable and measurable. 70 CHAPTER 6 NOTE PAYABLE Refinancing and fair value option Problem 6-1 (AICPA Adapted) ‘On September |. 2023, Pine Company issued a note payable to National Bank in the amount of P1,800,000, bearing interest at 12%, and payable in three equal annual principal payments of 600,000. On this date, the bank’s prime rate was 11%. The first interest and principal payment was made on September 1 , 2024. On December 31, 2024, what amount should be reported as accrued interest payable? a b. 48,000 e a Solution 6-1 Answer b ‘Note payable ~ September 1, 2023 1,800,000 Payment on September 1, 2024 . September 1, 2024 1,200,000 1,200,000 x 12% x 4/12) 48,000 (4,800,000 x 12% x 8/12) 144,000 2024 48.000 Total interest expense for 2024 192.000 n ee Eee ea URS te ee ee eS ea yt Ye Se es te ene ygProblem 6-2 (AICPA Adapted) Mann Company reported on June 30,2024 a 10% note payable in the amount of P3,600,000, ‘The note is dated October 1, 2022 and is payable in three equal annual payments of P1,200,000 plus interest. The first interest and principal payment was made on October 1, 2023. On June 30, 2024, what amount should be reported as accrued interest payable? a, 270,000 b. 180,000 90,000 4. 60,000 Solution 6-2 Answer b Note payable - October 1, 2022 Payment on October 1, 2023 Note payable - Ociober 1, 2023 3,600,000 200,000) Accrued interest payable from October 1, 2023 to ‘Sune 30, 2024 (2,400,000 x 10% x 9/12) Problem 6-3 (AICPA Adapted) ‘At year-end, Roth Company issued a P1,000,000 face amount note payable to Wake Companyin exchange fr services rendered toRoth Company. ‘The note, made at usual trade terms, is due in nine months and bears interest, payable at maturity, at the annual rate of 3%. ‘The market interest rate is 8%. The compound interest factor of | due in nine months at 8% is 944. ‘At what amount should the note payable be reported at year-end? Solution 6-3 Answer b Note payable at face amount . ge ee ERO ee Problem 6-4 (AICPA Adapted) Loob Company had the following loans at 12% interest payable at ‘maturity. The entity repaid each loan on scheduled maturity date. Amount Maturity date Term 300.000 | year 1.500.000 6 months 3.000.000 9 months recorded interest expense when the loans are repaid. Asa ferest expense of P1 50,000 was recorded in 2024, amount should be reported as interest expense for 2024? a. 150,000 b, 380.000 c. 390,000 d. 500.000 2. Ifno cor for 2024 a. 230,000 b. 350,000 c. 240,000 4. 0 made, by what amount would interest expense stated? Solution 6-4 Question 1 Answer b Question 2 Answer a May 1 - December 31, 2024 Total interest expense for 2024 380,000 Recorded interest expense in 2024 (150,000) Understatement of interest expense 230,000(eee ets ee ee Problem 6-5 (AICPA Adapted) ‘On December 31, 2023. Bart Company purchased a machine from Helix Company in exchange for a noninterest bearing note requiring tight payments of P200,000. The first payment was made on December 31, 2023 and the others are due annually on December 31. Atdate of issuance, the prevailing rate of interest for thistype of note was 11%. The PV of an ordinary annuity of | at 11% for 8 periods is and the PV of an annuity of 1 in advance at 11% for 8 periods is 5.712. 1. On December 31, 2023, what is the carrying amount of the note payable? a. 1,142,400 b. 1,029.200 cc. 1,046,200 d 942,400 2. What amount should be reported as interest expense for 2024? Solution 6-5 Question I Answer d PV of note payable (200,000 x 5.712) 1,142,400 First payment on December 31, 2023, (200,000) PV of note payable - December 31, 2023 942,400 The PV of an annuity of 1 in advance is used because the date of purchase is December 31, 2023 and the first payment is made on same date, December 31,2023. Question 2 Answer b Interest expense for 2024 (11% x 942,400) 103,664 14 problem 6-6 AICPA Adapted) beginning of current year, Pares Company d Aine er customer evidenced by a noninterest bearing note due iMthree years, The enti needs for the loan it the 12% it Salve of the What amount of interest expense should be rep year? 432,000 & 350,000 © 306,000 4 ° Solution 6-6 Answer c -xpense for current year (2,550,000 x 12%) Discount on note payable (3.600,000 — 2,550,000) Problem 6-7 (AICPA Adapted) On March 1, 2023, Alpha Company borrowed P1,000,000 and signed a 2-year note bearing interest at 12% per annum compounded annually. Interest is payable in full at maturity on February 28, 2025. What amount should be reported as accrued interest payable on December 31, 2024? a. 100,000 b. 120,000 e. 232,000 4. 240.000 Solution 6-7 Answer ¢ from March 1, 2023 to for this type of loan, the present Ms the beginning of current year. jorted for cusrent 306,000 1,050,000 120,000 rch 1 to December 31, 2024 112,000 t payable ~ December 31, 2024 232,000 yeans that the accruedee ees yell ee wee ee Problem 6-8 (AICPA Adapted) On September 30, 2024, World Company borrowed P1,000,009 ona 9% note payable. The entity paid the first of four quarterly payments of P264,200 when due on December 31, 2024. 1. What amount should be reported as interest expense for 20247 a. 90,000 b. 22,500 c. 67,500 d. 30,000 2. On December 31, 2024, what is the carrying amount of the note payable? a, 758,300 b. 750,000 c. 825,800 d. 735,800 Solution 6-8 Question 1 Answer 6 Interest expense from October 1 to December 31, 2024 * (9% x 1,000,000 x 3/12) 22,500 Question 2 Answer a 1,000,000 Ne ble ~ September 30. 2024 Principal payment: erly payment ~ December 31, 2024 264.200 Interest expense for 3 months (22,500) (241,700) Carrying amount ~ December 31, 2024 758,300 16 Problem 6-9 (IAA) ‘On January 1,2024, Solemn Company sold land to Glory Company. ‘There was no established market price for the land. Glory Company gave Solemn Company a P2,400,000 noninterest bearing note payable in three equal annual installments of P800,000 ‘with the frst payment due December 31, 2024. “The note hasno ready market. The prevailing rate of interest fora note of this type is 109. The present value of a P2,400,000 note payable in three equal annual installments of P800,000 ata 10% rate of interests P1,989,600. ‘What is the carrying amount of the note payable on December 31, Solution 6-9 Answer ¢ Note payable 2,400,000 Present value 1,989,600 Discount on note payable ~ January |. 2024 410,400 Amortization of discount for 2024 (10% x 1,989,600) (_198,960) Discount on note payable ~ December 31, 2024 211,440 Note payable - January 1, 2024 2,400,000 ‘Annual payment on December 31, 2024 (800,000) Note payable - December 31, 2024 1,600,000 Discount on note payable - December 31, 2024 211440) Carrying amount ~ December 31, 2024 1,388,560 7QBagaaGaE==eaeQrre'""—_—s—e=E“‘“F#PDsi‘—i—téS™” Problem 6-10 (AICPA Adapted) Jason Company offered acontestin which the winner would eceiy, 1,000,000 payable over twenty years. ‘OnDecember31, 2024, Jason Company announced the winner of the contest and signed a note payable to the winner for P,000,000 payable in P50,000 installments every January 31. On December 31,2024, Jason Company purchased an annuity fo, 418.250 to provide the P950,000 prize remaining after the first PS0,099 installment which was paid on January 31, 2025. 1. On December31, 2024, what amount should be reported as note payable-contest winner, net of current portion? a. 368,250 2. What amount should be reported as contest prize expense for 2024? a. 500,000 b. 418,250 c. 468,250 4. 0 Solution 6-10 Question 1 Answer b Contest prize expense 418250 Discount on note payable 531,750 ‘Note payable - noncurrent 950,000 Contest prize expense 50,000 ‘Note payable - current 50,000 The noncurrent note payable of P950,000 is presented minus the discount on note payable of 531,750 or P418,250. ‘Question 2 Answer ¢ Contest prize expense for 2024 (418,250+50,000) 468,250. 78 Problem 6-11 (AICPA Adapted) sued on March 1, 2022, maturing ‘on March 1, 2024 5,000,000 10% note ssued on October 1, 2022, maturing 3,000,000 ‘The 2023 financial statements were issued on March 31,2024. (On January 31, 2024, the entire P5,000,000 balance ofthe 12% note payable was refinanced through issuance of a long-term obligation payable lump sum. ‘On December 31, 2023, the emity has the right to defer settlement of the 10%note payable for at eat twelve months after December 31,2023. ‘What amount ofthe notes payable should be classified as eurrent on December31,2023? a. 8,000,000 b. 5,000.00 . 3,000,000 da 0 Soluion 6-1? Answer b 12% note payable 5,000,000 ‘An obligation that matures within one year shall be classified as current liability regardless of refinancing that was consummated after the end of reporting period and before issuance of financial the 12% note payable shall be classified as current the refinancing is made on January 31, 2024. refinancing occurs on or before the end of reporting, is classified asnoncurtent liability. ‘ight at the end of reporting period to roll over twelve months after the end of reporting period, n shall be class 9Problem 6-12 (AICPA Adapted) . Dean Company hada P?,000,000 note payable due June 30,2025, OnDecember 31.2024, the entity signed an agreement to borrow up to P2,000,000 to refinance the note payable ona long-term basis, The financing agreement called for borrowing not to exceed 80% ofthe value ofthe collateral theentty was providing. On December 31, 2024, the value of the collateral was 1,500,000. On December 31, 2024, wha be reported as current liability? a. 2,000,000 Note payable 2,000,000 Refinanced on December 31, 2024 ~ noncurrent (80% x 1,500,000) 1,200,000 Note payable — not refinanced, current 800,000 124, Largo Company had a P750,000 note payable due J 15. The entity planned to refinance the note by iss Because the Solution 6-13 Answer a The entire amount of P750,000 is reported as current liability because the note payable is due to be settled within one year regardless of the issuance of bonds payable. 80 ee. Problem 6-14 (AICPA Adapted) On January 1. 2024. Justine Company borrowed P2,000.000 on @ 10%, five-year note payable. On December 31.2024, the fair value of the note is determined to be 1,900,000 based on market and interest factors. “Theentity has lected the fair value option for reporting the financial ia 1. What amount should be reported as interest expense for 2024? 100.000 190,000 200,000 150,000 2, Whatis the carrying amount of the note payable on December 31, 2024? a. 2,000,000 b. 1,900,000 cc. 950,000 d. 900,000 3, Whatamount should be reported as gain orloss in 2024 asa result of the fair value option?—__——_ —(seetfteSsh Solution 6-14 Question I Answer ¢ Interest expense for 2024 (2,000.000-x 10%) = 200.000 Question 2 Answer b cece Carrying amount equal to fair value 1,900,000 Question 3 Answer a Note payable — January 1, 2024 2,000,000 Fair alue~ December 31,2024 1,900,000 Decrease in fair value of note payable — gain 100,000 1e option is elected for reporting a financial liability, the reported at fair valueat every year-end with resulting changes lue included in profit or loss. However, ifthe change in fair value is attributable to creditrisk ofthe financial liability, the gain or lossis recognized in other comprehensive income. Question 4~ Journal entries 1. Cash 2,000,000 Note payable 2,000,000 2. Note payable 100,000 Gain from change in fair value 100,000 3. Interest expense (10% x2,000.000) 200,000, Cash 200,000 ‘Under the fair value option, any discount or premium onthe note payable is snot recognized. The interest expenses computed wing he nominal te. Therefore, any discount or premium does not affect the interest expense. 82 c. | d 460,000 Problem 6-15 (AICPA Adapted) 2024, Jonathan Company borrowed P500,000 8%, jnterest-bearing note due in four years. The present value ofthe note on 57,500. ‘The entity has elected the fair value option for reporting the financial Tability On December 31, 2024, the fir vale of the note is P408,150. 1. Whats the carrying amount of the note payable on December 31, 0 2. Whatamount should be reported as interest expense for 2024? a 2 ere if int should be reported as net gain from change in fair 4? a Poe Ple Ss. RoeSolution 6-15 Question 1 Answer ¢ Camrying amount equal to fair value on December 31,2024 408,150 Question 2 Answer a ae Interest expense for 2024 (500,000 x 8%) + 40,005 Under the fair value nominal at Value option, the interest expenses computed using the Question 3 Answer ¢ Face amount 500, Fair-value— December us Net gain from change in fair value during 2024 91,850 Question 4 Answer d Ifthe fair value option is elected for reporting a financial liability, the ‘accounting rules for reporting discount or premium no longer apply. Journal entries Jan, 1 Cash 500,000 Note payable 367,500 Gain from change in fair value 132,500 Dec. 31 Interest expense 40,000 . Cash 40,000 31 Loss from change in fair value 40.650 40.650 Gain from change 132,500 Loss from change 40,650 Net gain from change 91,850 a4 CHAPTER 7 DEBT RESTRUCTURE Problem 7-1 (AICPA Adapted) Hull Company is indebted to Apex under a PS,000,000, 12%, three-year note dated December 31, 2022. Because of Hull ‘Company's financial dificulties developing in 2024, Hull Company owed acorued interest of P600,000 on the note on December 31,2024. Under a debt restructuring on December 31,2024, Apex Company agreed o settle the note and accrued interest fora tract of land having a fair value of P4,500,000. The carrying amount of the land is P 00. What amount of pretax gain on extinguishment should Hull Company report as component of income from continuing operations in 2024? a. 2,000,000 b. 1,400,000 ¢. 1,100,000 4. "900,000 Solution 7-1 Answer a 5,000,000 interest payable 600,000 5,600,000 Carrying amount of land (3,600,000) -nt— TERS 2,000,000 PERS 9, paragraph 3.3.3, provides that the difference between the inancial liability extinguished and the consideration paid, including any noncash asset transferred or liability assumed shall be recognized in profit or loss. 85| ime ee Problem 7-2 (JAA) ‘Versatile Company, after having ex] al difficulties i 5 iced financial difficulties thecurren yous Regouaed mtgengorcrettorsndarrved aan wife at year-end. The creditor 500 and interest of P400,000 but ith fair value P700,000 and note "sg customer ith carryir 2,700,000. The equipment had an o of )0 and accumulated depreciation ‘of P300,000. What amount should be recognized as gain from debt extinguishment for the current year? Solution 7-2 Answer a ! (3,600,000 + 400,000) 4,000,000 mA agi (2700000) ‘at carrying amount (900,000 ~ 300,000) f 600.000) 700,000 Problem 7-3 (AICPA Adapted) Knob Company transferred real estat fo Mene Company pursuanto adebt restructuring fene: ‘Carrying amount of lat Carrying amount of | tate transferred 90,000 Fair value of real es Under USA GAAP, what amount ‘should be reported as gain or loss on restructuring? a. 600,000 gai & 500,000 gain ¢. 100,000 100,000 gain Solution 7-3 Answer a y Canryin Sf init Sprays 598 Gain on restructuring 800.000 Fair value of real estate Carrying amount of real estate 10000 490,000) Loss on transfer of real estate 86 Problem 7-4 (AICPA Adapted) ‘Ace Company entered into a troubled debt tha canying anda fair value of P1,000,000 inexchange ‘with National Bank. ‘The bank agreed to accept land wi carrying amount of Pi,500.000. Under IFRS, what amount should extinguishment of debt? a. 700,000 b. 300,000 . 500,000 Carrying amount of note payable Carrying amount of land Gain on extinguishment-LFRS Problem 7-5 (AICPA Adapted) ‘Mann Company ex ult on a P5.000.0 5: sr 31, 2024, the bank agreed to settle the rest of P750,U00 for P4.100,000 cash payable on restructuring agreement amount of P800,000 payable with a be reported as a gain on financial difficulties and % three-year note dated note and wuld be reported as gain from extinguishment of 5,000,000 750,000 3,750,000 (4,100,000) 1,650,000