1. Monterey Co. is indebted to BDO under a P16,000,000, 10%, 4-year note dated December 31, 2017. Annual interest of P1,600,000 was paid on December 31, 2018 and 2019. During 2020, Monterey experienced financial difficulties and is likely to default unless concessions are made. On December 31, 2020, BDO agreed to restructure the debt as follows:
Interest of P1,600,000 December 31, 2020 was waived.
Extended the maturity to December 31, 2021.
The principal amount is reduced to P14,000,000
Interest of P1,540,000 of the new principal will be paid on maturity date
Instructions:

A. How much should Monterey report as gain on restructuring in it profit or loss for the year ended December 31, 2020, assume an income tax rate of 32% (carry present value factors up to three decimal places)
B. Prepare entries to record debt restructuring

2. On December 31, 2020, Getz Company was experiencing financial difficulties and entered into a debt restructuring agreement with the creditor. The creditor restructured the obligation as follows:
The principal was reduced from P20,000,000 to P18,000,000.
Forgave the accrued interest of P2,400,000
Extended the maturity date from December 31, 2012 to December 31, 2023
Reduced the interest rate from 12% to 10%. Interest is payable annually on December 31, 2021, 2022 and 2023.

Instructions:

A. How much should the creditor report as loss on debt restructuring? (Carry present value factors to 3 decimal places)

B. Prepare entries to record the debt restructuring

Answer rating: 100% (QA)

1 A Monterey should report a gain on restructuring of P4608000 in its profit or loss for the year en... View the full answer