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    Acctg 4 Quiz 3 Debt Restructuring Payables 1

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    Competente, Jhonna W.
    1. Situation A describes notes payable of $900,000 with accrued interest of $90,000 for a total carrying amount of $990,000. The equipment was carried at $600,000 and there was a gain on debt extinguishment of $390,000. 2. Situation B describes bonds payable of $10 million with accrued interest of $900,000 for a total carrying amount of $10.9 million. Shares were issued at a fair value of $8.4 million and par value of $7.5 million, resulting in a gain on debt extinguishment of $2.5 million. 3. Situation C shows old liability of $10 million

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    Acctg 4 Quiz 3 Debt Restructuring Payables 1

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    Competente, Jhonna W.
    274 views11 pages
    1. Situation A describes notes payable of $900,000 with accrued interest of $90,000 for a total carrying amount of $990,000. The equipment was carried at $600,000 and there was a gain on debt extinguishment of $390,000. 2. Situation B describes bonds payable of $10 million with accrued interest of $900,000 for a total carrying amount of $10.9 million. Shares were issued at a fair value of $8.4 million and par value of $7.5 million, resulting in a gain on debt extinguishment of $2.5 million. 3. Situation C shows old liability of $10 million

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    1. Situation A describes notes payable of $900,000 with accrued interest of $90,000 for a total carrying amount of $990,000. The equipment was carried at $600,000 and there was a gain on debt extinguishment of $390,000. 2. Situation B describes bonds payable of $10 million with accrued interest of $900,000 for a total carrying amount of $10.9 million. Shares were issued at a fair value of $8.4 million and par value of $7.5 million, resulting in a gain on debt extinguishment of $2.5 million. 3. Situation C shows old liability of $10 million

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    274 views11 pages

    Acctg 4 Quiz 3 Debt Restructuring Payables 1

    Uploaded by

    Competente, Jhonna W.
    1. Situation A describes notes payable of $900,000 with accrued interest of $90,000 for a total carrying amount of $990,000. The equipment was carried at $600,000 and there was a gain on debt extinguishment of $390,000. 2. Situation B describes bonds payable of $10 million with accrued interest of $900,000 for a total carrying amount of $10.9 million. Shares were issued at a fair value of $8.4 million and par value of $7.5 million, resulting in a gain on debt extinguishment of $2.5 million. 3. Situation C shows old liability of $10 million

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 11

    A B C D E F G H

    1 Situation A. Notes Payable 900,000.00 Notes Payable 900,000.00


    2 Accrued Interest 90,000.00 Accrued Interest Payable 90,000.00
    3 Liability Carrying Amount 990,000.00 Equipment
    4 Equipment Carrying Amount 600,000.00 Gain on Extinguishment of Debt
    5 Gain on Extinguishment of Debt 390,000.00
    6
    7 Situation B. Bonds Payable CA 10,000,000.00 Bonds Payable 10,000,000.00
    8 Accrued Interest 900,000.00 Accrued Interest Payable 900,000.00
    9 Liability Carrying Amount 10,900,000.00 Share Capital
    10 Shares Fair Value 8,400,000.00 Share Premium
    11 Shares Par Value 7,500,000.00 Gain on Extinguishment of Debt
    12 Gain on Extinguishment of Debt 2,500,000.00
    13
    14 Situation C. Old Liability 10,000,000.00 Liability - Old 10,000,000.00
    15 Accrued Interest 1,200,000.00 Accrued Interest 1,200,000.00
    16 Old Liability Carrying Amount 11,200,000.00 Discount on New Liability 540,736.00
    17 New Liability Principal 8,000,000.00 Liability - New
    18 New Liability Interest Payment 640,000.00 Gain on Extinguishment of Debt
    19 PV of 1 at 12% for 2 periods 0.7972
    20 PV of Annuity at 12% for 2 periods 1.6901
    21 PV of Principal 6,377,600.00
    22 PV of Interest 1,081,664.00
    23 Total PV of New Liability 7,459,264.00
    24 Gain on Extinguishment of Debt 3,740,736.00
    25 Discount on New Liability 540,736.00
    26
    27 Situation D. Old Liability 3,000,000.00 Accrued Interest 330,000.00
    28 Accrued Interest 330,000.00 Premium on New Liability
    29 Old Liability Carrying Amount 3,330,000.00 Gain on Debt Restructuring
    30 New Liability Principal 3,000,000.00
    A B C D E F G H
    31 New Liability Interest Payment 360,000.00
    32 PV of 1 at 11% for 5 periods 0.5935
    33 PV of Annuity at 11% for 5 periods 3.6959
    34 PV of Principal 1,780,500.00
    35 PV of Interest 1,330,524.00
    36 Total PV of New Liability 3,111,024.00
    37 Gain on Debt Restructuring 218,976.00
    38 Premium on New Liability 111,024.00
    I
    1
    2
    3 600,000.00
    4 390,000.00
    5
    6
    7
    8
    9 7,500,000.00
    10 900,000.00
    11 2,500,000.00
    12
    13
    14
    15
    16
    17 8,000,000.00
    18 3,740,736.00
    19
    20
    21
    22
    23
    24
    25
    26
    27
    28 111,024.00
    29 218,976.00
    30
    Journal Entries
    April 1, 2018 Cash 2,591,760.00
    Discount on Notes Payable 608,240.00
    Notes Payable 3,200,000.00

    December 31, 2018 Interest Expense 174,943.80


    Accrued Interest Payable 174,943.80

    January 1, 2019 Accrued Interest Payable 174,943.80


    Interest Expense 174,943.80

    March 31, 2019 Interest Expense 233,258.40


    Notes Payable 566,741.60
    Cash 800,000.00

    December 31, 2019 Interest Expense 136,688.74


    Accrued Interest Payable 136,688.74
    9%

    Date Payments Interest Expense Principal Present Value


    April 1, 2018 2,591,760.00
    March 31, 2019 800,000.00 233,258.40 566,741.60 2,025,018.40
    March 31, 2020 800,000.00 182,251.66 617,748.34 1,407,270.06
    March 31, 2021 800,000.00 126,654.31 673,345.69 733,924.36
    March 31, 2022 800,000.00 66,053.19 733,946.81 - 22.45
    3,200,000.00 608,217.55 2,591,782.45
    PV of Annity of 4 at 9% 3.2397

    As of December 2019
    Current Liability 754,437.09
    Non-current Liability 1,407,270.06
    Journal Entries
    April 1, 2018 Cash 2,591,760.00
    Discount on Notes Payable 608,240.00
    PROBLEM 3
    Notes Payable 3,200,000.00

    December 31, 2018 Interest Expense 174,943.80


    Accrued Interest Payable 174,943.80

    March 31, 2019 Interest Expense 58,314.60


    Discount on Notes Payable 58,314.60

    March 31, 2019 Notes Payable 800,000.00


    Cash 800,000.00

    December 31, 2019 Interest Expense 136,688.74


    Discount on Notes Payable 136,688.74

    Required: 9%
    a. Date Payments Interest Expense Principal
    2,591,760.00 April 1, 2018
    March 31, 2019 800,000.00 233,258.40 566,741.60
    March 31, 2020 800,000.00 182,251.66 617,748.34
    March 31, 2021 800,000.00 126,654.31 673,345.69
    March 31, 2022 800,000.00 66,053.19 733,946.81
    3,200,000.00 608,217.55 2,591,782.45

    Face Amount 3,200,000.00


    Annual Payments 800,000.00
    PV of Annuity for 4 periods at 9% 3.24
    Present Value 2,591,760.00
    Discount 608,240.00
    152,060.00
    114,045.00
    PROBLEM 3

    Present Value
    2,591,760.00
    2,025,018.40
    1,407,270.06
    733,924.36
    - 22.45
    Face Amount (P) 6,949,800.00 Date
    Interest Rate (j) 9% August 31, 2019
    Compounds (m) 1 August 31, 2020
    Therefore (i) 9% August 31, 2021
    Years (n) 3
    Formula P(1+i)^n
    Compounded Amount 9,000,192.54
    Compounded Interest 2,050,392.54

    Required:
    Interest Expense for 2018 208,494.00
    a. Interest Expense for 2019 644,246.46
    Interest Expense for 2020 702,228.64

    b. As of December 2019 8,601,969.00

    c. Non-current Notes Payable (2019) 6,949,800.00


    Current Interest Payable (2019) 227,258.46

    Current Notes Payable (2020) 6,949,800.00


    Current Interest Payable (2020) 247,711.72
    Principal interest Formula Interest Expense New Principal Amount
    6,949,800 x 9% x 1 625,482.00 7,575,282.00
    7,575,282 x 9% x 1 681,775.38 8,257,057.38
    8,257,057.38 x 9% x 1 743,135.16 9,000,192.54
    Total 2,050,392.54

    Interest Expenses Payable on


    Up until December 2018 208,494.00
    August 31, 2019
    Jan 2019 to August 2019 416,988.00
    Total 625,482.00

    Up until December 2019 227,258.46


    August 31, 2020
    Jan 2020 to August 2020 454,516.92
    Total 681,775.38

    Up until December 2020 247,711.72


    August 31, 2021
    Jan 2021 to August 2021 495,423.44
    Total 743,135.16

    PROBLEM 4
    12% 8%
    Date Interest Paid Interest Expense Premium Amortization Carrying Amount
    January 1, 2018 12,684,120.00
    December 31, 2018 1,200,000.00 1,014,729.60 185,270.40 12,498,849.60
    December 31, 2019 1,200,000.00 999,907.97 200,092.03 12,298,757.57
    December 31, 2020 1,200,000.00 983,900.61 216,099.39 12,082,658.17
    December 31, 2021 1,200,000.00 966,612.65 233,387.35 11,849,270.83
    December 31, 2022 1,200,000.00 947,941.67 252,058.33 11,597,212.49
    December 31, 2023 1,200,000.00 927,777.00 272,223.00 11,324,989.49
    December 31, 2024 1,200,000.00 905,999.16 294,000.84 11,030,988.65
    December 31, 2025 1,200,000.00 882,479.09 317,520.91 10,713,467.74
    December 31, 2026 1,200,000.00 857,077.42 342,922.58 10,370,545.16
    December 31, 2027 1,200,000.00 829,643.61 370,356.39 10,000,188.78
    12,000,000.00 9,316,068.78 2,683,931.22 113,766,928.49
    Required:
    a. 185,270.40
    b. 11,849,270.83 Bonds Retired = 3,554,781.25
    c. 254,781.25
    d. 663,559.17
    e. 8,118,048.75

    12% 8%
    Date Interest Paid Interest Expense Premium Amortization Carrying Amount
    December 31, 2021 8,294,489.58
    December 31, 2022 840,000.00 663,559.17 176,440.83 8,118,048.75
    December 31, 2023 840,000.00 649,443.90 190,556.10 7,927,492.65
    December 31, 2024 840,000.00 634,199.41 205,800.59 7,721,692.06
    December 31, 2025 840,000.00 617,735.36 222,264.64 7,499,427.42
    December 31, 2026 840,000.00 599,954.19 240,045.81 7,259,381.61
    December 31, 2027 840,000.00 580,750.53 259,249.47 7,000,132.14
    Bonds Payable 3,000,000.00
    Premium Remaning 554,781.25
    Carrying Amount on December 31, 2021 3,554,781.25

    Face Amount 10,000,000.00

    Original Premium 2,684,120.00


    Premium Already Amortized 834,849.17
    Balance December 31, 2021 1,849,270.83

    Carrying Amount on December 31, 2021 3,554,781.25


    Less: Retirement Price 3,300,000.00
    Gain on Early Retirement 254,781.25

    PROBLEM 5

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