Migs Company owes P2,000,000 plus P180,000 of accrued interest to Philippine National Bank. The debt is a 10-year, 10% note. During 2020, Migs business deteriorated due to a faltering regional economy. On December 31, 2020, Philippine National bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of P3,900,000, accumulated depreciation of P2,210,000, and a fair market value of P1,900,000.

Instructions:

A. Prepare journal entries for Migs Company and Philippine National Bank to record this debt settlement

B. Assume that instead of transferring the machine, Migs decides to grant 15,000 shares of its ordinary shares (P100 par) which has a fair market value of P1,900,000 in full settlement of the loan obligation. If Philippine National Bank treats Migs’ shares as a trading investment, prepare entries to record the transaction for both parties.

Answer rating: 100% (QA)

A Migs Company Debit Credit Accounts Receivable 1900000 Interest Expense 180000 Notes ... View the full answer