Boom Co. defaulted in two annual interest payments on its P4,000,000 loan. Because of the default, the lender agrees on December 31, 20x1 to restructure the loan as follows:

The lender waives the repayment of the unpaid (simple) interest and any future interests.

The loan, which is originally maturing in lump sum on December 31, 20x1, will be due in four equal annual payments of P1,000,000, to start immediately.

The original effective interest rate is 10%, equal to the stated rate on the original loan contract. The current market rate on December 31, 20x1 is 12%. What amount of interest expense should Boom Co. recognize in 20x27

a. 400,000

b. 248,685

c. 316,987

d. 0

Answer rating: 100% (QA)

This question pertains to the treatment of loan restructuring in terms of recognition of interest ex... View the full answer