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Seatwork-Debt Restructuring - STUDENTS

This document contains an accounting practice exam with multiple choice and true/false questions about accounting for debt restructuring. The multiple choice questions ask students to calculate amounts to be recognized as gains from debt restructuring in different scenarios where companies transfer assets or issue equity to settle debt obligations. The true/false questions cover accounting policies for recognizing gains on debt restructuring depending on whether the new terms are substantially different and how to account for differences between amounts settled and amounts received or transferred.

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898 views1 page

Seatwork-Debt Restructuring - STUDENTS

This document contains an accounting practice exam with multiple choice and true/false questions about accounting for debt restructuring. The multiple choice questions ask students to calculate amounts to be recognized as gains from debt restructuring in different scenarios where companies transfer assets or issue equity to settle debt obligations. The true/false questions cover accounting policies for recognizing gains on debt restructuring depending on whether the new terms are substantially different and how to account for differences between amounts settled and amounts received or transferred.

Uploaded by

padayonmhie
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
  • Accounting Problems

ACCA106-Intermediate Accounting 2 1st Semester, SY23-24

SEATWORK

Solve the following problems and present your complete solution and the letter of your answer
for each items below.
1. The following information pertains to the transfer of real estate pursuant to a debt
restructuring by K Company to M Company in full liquidation of K's liability to M:
Carrying amount of liability liquidated 1,500,000
Carrying amount of real estate transferred 1,300,000
Fair value of real estate transferred 1,200,000
What amount of pretax gain should K report as component of income from continuing
operations?
a. 300,000 c. 200,000
b. 500,000 d. 0
2. V Company, after having experienced financial difficulties in 2023, negotiated with a major
creditor and arrived at an agreement to restructure its note payable on December 31, 2023.
The creditor was owed principal of P3,600,000 and interest of P400,000 but agreed to accept
equipment worth P700,000 and note receivable from a Versatile Company's customer with
carrying amount of P2,700,000. The equipment had an original cost of P900,000 and
accumulated depreciation of P200,000. How much should be recognized as gain from debt
restructuring on December 31, 2023?
a. 700,000 c. 400,000
b. 600,000 d. 0
3. Due to adverse economic circumstances and poor management, T Highlands Company has
negotiated a restructuring of 9% P6,000,000 note payable to Second Bank due on January 1,
2023. There is no accrued interest on the note.
The bank has reduced the principal obligation from P6,000,000 to P5,000,000 and
extend the maturity to 3 years or on December 31, 2025. The new interest rate is 10%
payable annually every December 31.
The present value of 1 at 9% for three periods is 0.77 and the present value of an
ordinary annuity of 1 at 9% for three periods is 2.53.
What is the gain on extinguishment of debt to be recognized for 2023?
a. 1,000,000 c. 565,500
b. 500,000 d. 885,000
4. S Company is experiencing financial difficulty and is negotiating debt restructuring with its
creditor to relieve its financial stress. S has a P2,500,000 note payable to U Bank. The bank
is considering acceptance of an equity interest in S Company in the form of 200,000 ordinary
shares valued at P12 per share. The par value is P10 per share. How much share premium
should be recognized from the debt restructuring?
a. 500,000 c. 400,000
b. 100,000 d. 0

Write True if the statement is correct and False, if otherwise for each items.
1. In a modification of terms, when the total discounted cash flows under the new terms
exceed the carrying value of the debt, a gain on debt restructuring is recognized in profit
or loss if the discounted present value of the new terms is at least 10% different from the
carrying value of the old obligation.
2. Any difference between the carrying value of the debt settled and the carrying value of the
asset transferred shall be taken to profit or loss during the period of the debt settlement.
3. In debt restructuring where shares of equity instruments are granted to settle an obligation,
the excess of the carrying value of the debt settled over the par value of the shares issued
shall be taken to profit or loss during the period of debt settlement.
4. In a modification of terms where a gain on debt restructuring is recognized, the debtor
recognizes interest expense after the debt restructuring based on the historical interest
rate.

“The vision that you glorify in your mind, the ideal that
you enthrone in your heart, this you will build your
life by, and this you will become.”
James Allen, As a Man Thinketh

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