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How much is the gain on debt restructuring

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    Assignment ID: FG133135877

    Question – This problem has 2 questions. KAYAP Company has an overdue notes payable to ABA Bank of P800,000 and recorded accrued interest of P96,000 as of December 31, 2020. ABA Bank agreed to the following restructuring agreement on December 31, 2020 wherein the prevailing market interest rate for similar debt instrument on this date is 12%:

    Reduce the principal obligation by P100,000.

    Waive the P96,000 accrued interest.

    Extend the maturity date to December 31, 2022.

    Annual interest of 10% of the new principal is to be paid on December 31, 2021 and December 31, 2022.

    Present value of P1 at 12% for 2 periods is 0.7972. Present value of an ordinary annuity of P1 at 12% for 2 periods is 1.6901.

    Present value of P1 at 10% for 2 periods is 0.8264. Present value of an ordinary annuity of P1 at 10% for 2 periods is 1.7355.

    The following are the 2 questions:

    1. How much is the gain on debt restructuring?

    2. What is the carrying value of the note on December 31, 2020?

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