Assignment-Week 2 PDF

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Seal Company is experiencing financial difficulty and is negotiating debt restructuring with its creditor to relieve its financial stress. Seal has a P2,500,000 note payable to United Bank. The bank accepted an equity interest in Seal Company in the form of 200,000 ordinary shares quoted at P12 per ...

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Seal Company is experiencing financial difficulty and is negotiating debt restructuring with its creditor to relieve its financial stress. Seal has a P2,500,000 note payable to United Bank. The bank accepted an equity interest in Seal Company in the form of 200,000 ordinary shares quoted at P12 per share. The par value is P10 per share. The fair value of the note payable on the date of restructuring is P2,200,000 1. What amount should be recognize as gain from debt extinguishment as result of the "equity swap"? Note Payable 2,500,000 Ordinary share (200,000X12) (2,400,000) Gain from debt extinguishment 100,000 2. What amount should be recognized as share premium from the issuance of the shares? Ordinary share (200,000X12) 2,400,000 Par Value of shares (200,000X10) (2,000,000) Share premium- Issuance 400,000 3. If the shares have no fair value, what amount should be recognized as a gain on extinguishment? Note Payable 2,500,000 Fair value of Note payable (2,200,000) Gain on extinguishment 300,000 Due to extreme financial difficulties, Armada Company had negotiated a restructuring of a 10% P5,000,000 note payable due on December 31, 2020. The unpaid interest on the note on such date is P500,000 The creditor had agreed to reduce the face value to P4,000,000, forgive the unpaid interest, reduce the interest rate to 8% and extend the due date three years from December 31, 2020. The PV of 1 at 10% for three periods is 0.75 and the PV of an ordinary annuity of 1 at 10% for three periods is 2.49. 4. What is the gain on extinguishment of debt in 2020? 5. What is the interest expense for 2021? PV of Pricipal (4M x .75) PV of Interest (4M x .08 x 2.49) PV -New note payable

3,000,000 796,800 3,796,800

Note payable- old Accrued interest Carrying Amt. PV -New note payable Gain on extinguishment of debt in 2020

5,000,000 500,000 5,500,000 (3,796,800) 1,703,200

Interest expense -2021 (.10 x 3,796,800)

379,680

On January 1, 2020, Rlin Company issued convertible bonds with a face amount of P5,000,000 for P6,000,000. The bonds are convertible into 50,000 shares with P100 par value. The bonds have a 5-year life with 10% stated interest rate payable annually every December 31. The fair value of the convertible bonds without conversion option is computed at on January 1, 2020. On December 31, 2022, the convertible bonds were not converted, but fully paid for P5,550,000. On such date, the fair value of the bonds without conversion privilege is P5,400,000 and the carrying amount is P5,178,300 6. What is the carrying amount of the bonds payable on January 1, 2020? Carrying Amount- Jan.1,2020 5,399,300 7. What us the premium on bonds payable on January 1, 2020? Carrying Amount- Jan.1,2020 5,399,300 Face Amount (5,000,000) Premium on Bonds Payable 399,300 8. What is the equity component arising bonds payable on January 1, 2020? Issue Price 6,000,000 Fair Value on Bonds Payable w/o conversion (5,399,300) Share premium- conversion privilege 600,700 9. What is the loss on extinguishment of the convertible bonds payable on December 31, 2022? Carrying Amount 5,178,300 Fair Value- w/o conversion privilege (5,400,000) Loss on Extinguishment (221,700)...