Advanced Accounting Answer Key

Reorganization and Troubled Debt Restructuring 135

CHAPTER 8

MULTIPLE CHOICE ANSWERS AND SOLUTIONS

8-1: a Trade accounts payable (P52,000 + P62,700) P114,700 12% preferred stock (5,000 x P1) P 5,000 Paid in capital in excess of par (5,000 x P9) 45,000 Cash (P62,700 x P0.80) _50,160 _100,160

Gain from discharge of indebtedness P 14,540

8-2: c

8-3: c

8-4: b Carrying value of the note payable: Principal P600,000 Interest __60,000 P660,000 Restructured value: Principal P400,000 Interest _110,000 _510,000

Gain on debt restructuring P150,000

8-5: d Other income: Fair value of land P450,000 Books value of land _360,000

Other income P 90,000

Extraordinary gain: Book value of note payable Principal P500,000 Interest __60,000 P560,000 Fair value of land _450,000

Extraordinary gain P110,000

8-6: a Book value of bonds payable P500,000 Par value of preferred stock (5,000 shares x P100) _500,000

No gain no loss P –0–

136 Chapter 8

8-7: a

Book value of notes payable: Principal P 2,500 Interest ___500 P 3,000 Par value of common stock issued (200 shares x P5) __1,000

Additional paid in capital P 2,000 Add gain on payment of accounts payable: Book value P 10,000 Payment __8,000 __2,000

Total gain on debt discharge P 4,000

8-8: a Carrying value of debt: Note payable P100,000 Interest payable __12,000 P112,000 Fair value machinery _(36,000)

Balance of debt P 76,000 Restructured debt: Note payable P 50,000 Interest (P50,000 x .08 x 2) ___8,000 __58,000

Restructuring difference (gain) P 18,000

8-9: d Principal P300,000 Interest payable (300,000 x 10%) __30,000

Carrying value P330,000