On December 31, 20?1, an entity enters into a restructuring agreement to modify the terms of its
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Question:
On December 31, 20?1, an entity enters into a restructuring agreement to modify the terms of its existing loan as follows:
The principal is reduced from P2,800,000 to P2,500,000.
The lender waived the accrued interest of P400,000.
The nominal rate is decreased from 14% to 9%.
The maturity date is extended from December 31, 20x1 to January 1, 20x6.
The principal is due in lump sum at maturity date but interest is payable annually at each year-end. The original effective interest rate is 14%. The prevailing rate on December 31, 20?1 is 12%.
Requirement: Provide the entry to record the modification of the loan.
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