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a. 2,000, b. 1,400, c. 1,100, d. 900,
SOLUTION:
a. 300, b. 500, c. 200, d. 0
SOLUTION:
3. During 2020, Mann Company experienced financial difficulties and is likely to default on a P
5,000,000, 15% three-year note dated January 1, 2018 payable to Summit Bank. On December
31, 2020, the bank agreed to settle the note and unpaid interest of P 750,000 for P 4,100,
cash payable on January 31, 2021. What amount should be reported as gain from
extinguishment of debt in the 2020 income statement?
a. 1,650, b. 900, c. 750, d. 0
SOLUTION:
4. Due to extreme financial difficulties, Armada Company had negotiated a restructuring of a P
10% P 5,000,000 note payable on December 31, 2020. The unpaid interest on the note on such
date was P 500,000. The creditor agreed to reduce the face amount to P 4,000,000, forgive the
unpaid interest, reduce the interest rate to 8% and extend the due date three years from
December 31, 2020. The present value of 1 at 10% for three periods is 0.75 and the present
value of an ordinary annuity of 1 at 10% for three periods is 2.49. What is the gain on
extinguishment for 2020?
a. 1,703, b. 1,203, c. 2,000, d. 540,
(In connection to problem 4 ) 5.) What is the interest expense for 2021?
a. 320, b. 379, c. 500, d. 400,
SOLUTION:
6.) What is the present value of the new note payable on January 1, 2020?
a. 6,000, b. 5,000, c. 5,494, d. 3,850,
d. 638,
SOLUTION:
12.) In a debt restructuring that is considered an asset swap, the gain on extinguishment is equal
to
a. Excess of the fair value of the asset over its carrying amount b. Excess of the carrying amount of the debt over the fair value of the asset c. Excess of the fair value of the asset over the carrying amount of the debt. d. Excess of the carrying amount of the debt over the carrying amount of the asset
13.) For a debt restructuring involving substantial modification of terms, it is appropriate for a
debt or to recognize a gain when the carrying amount of the debt
a. Exceeds the total future cash payments specified by the new terms. b. Is less than the total future cash payments specified by the new terms. c. Exceeds the present value of the future cash payments specified by the new terms. d. Is less than the present value of the future cash payments specified by the new terms
14.) For a debt restructuring involving a substantial modification of terms, which of the following
specified by the new terms would be compared to the carrying amount of the debt to determine if
the debtor should report a gain on extinguishment?
a. The total future cash payments. b. The present value of the new deb at the original interest rate. c. The present value of the new debt at the modified interest rate d. The amount of future cash payments
15.) Under a debt restructuring involving substantial modification of terms, the future cash flows
under the new terms shall be discounted using
a. Original effective interest rate b. Interest rate under the new terms c. Market rate of interest d. Prime interest rate
16.)An entity shall initially measure equity instruments issued to extinguish a financial liability at
a. Fair value of the equity instruments issued b. Fair value of the liability extinguished c. Par value of the equity instruments issued d. Carrying amount of the liability extinguished
17.) If the fair value of the equity instruments issued cannot be reliably measured, the equity
instruments issued to extinguish a financial liability shall be measured at
a. Fair value of the liability extinguished b. Par value of the equity instruments issued c. Carrying amount of the liability extinguished d. Book value of the equity instruments issued
18.) If both the fair value of the equity instruments issued and the fair value of the financial
liability extinguished cannot be measured reliably, the equity instruments issued shall be
measured at
a. Carrying amount of the liability extinguished b. Par value of equity instruments issued c. Carrying amount of the equity instruments issued d. Value assigned by the Board of Directors
19.) The difference between the carrying amount of the financial liability extinguished and the fair
value of equity instruments issued shall be recognized in
a. Profit or loss b. Other comprehensive income c. Retained earnings d. General reserve
20.) The gain or loss from extinguishment of a financial liability by issuing equity instruments is
presented as
a. Other income or other expense b. Separate line item in the income statement c. Component of other comprehensive income d. Component of finance cost
