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DEBT RESTRUCTURING AND EMPLOYEE BENEFITSSHAREHOLDERS’ EQUITY
1. Debtor Company is indebted to Creditor Corp. under a P5,000,000, 12%, three-year note dated
December 31, 2016. Because of Debtor’s financial difficulties developing in 2018, Debtor owed
accrued interest of P300,000 on the note at December 31, 2018. Under a troubled debt restructuring
on December 31, 2018, Creditor agreed to settle the note and accrued interest for a tract of land
having a fair value of P4,300,000. The land is carried at Debtor’s books at its historical cost of
P2,800,000.
What is the amount of gain on debt restructuring should Debtor recognize in 2018?
A.P2,500,000 C.P1,000,000
B. 2,200,000 D. 1,500,000
2. On December 31, 2018, Debtor Company shows the following data with respect to its matured
obligation:
Debtor enters into an agreement with the creditor for the issuance of common stock in full settlement
of the mortgage. The agreement provides for the issue of 80,000 shares of common stock with par
value of P50. The common stock is currently quoted at P100 per share.
How much should be reported as gain on debt restructuring in Debtor’s December 31, 2018 income
statement?
A. P0 C. P1,000,000
B. . 300,000 D. 1,300,000
Debtor Company is indebted to Creditor Company for P15,000,000 on December 31, 2017. The
principal and accrued interest of P3,000,000 are long overdue. The interest on the note is 10%.
Debtor Company negotiated with Creditor Company for the restructuring of the obligation. The
results of the negotiation are:
The present value of 1 at 10% for two periods is 0.8264 and the present value of an annuity of 1 at
10% for two periods is 1.7355.
3. How much gain on debt restructuring should Debtor Company recognize on December 31, 2017?
A. P1,260,000 C. P4,032,090
B. 1,032,090 D. 0
6. Due to adverse economic circumstances and poor management, Debtor Company has negotiated a
restructuring to its P17,000,000 note payable to Secure Bank. There is no accrued interest on the
note. The bank has agreed to reduce the face value of the note from P17,000,000 to P16,000,000,
reduce the interest rate from 14% to 10%, and extend the due date one year from the date of
restructuring.
The restructuring will occur on December 31, 2018, the end of Debtor’s accounting period. There is
no unpaid interest on restructured note at this time.
The present value of 1 at 14% for one period is 0.8772 and the present value of an ordinary annuity
of 1 for two periods at 14% is 1.6467.
The gain on debt restructuring that should be recognized by Debtor Company on December 31,
2018 is
A. P1,561,280 C. P2,964,800
B. 2,304,640 D. 0
7. DCP Company has a defined contribution plan that covers its existing employees.
The terms of the plan requires DCP to contribute 3 % of the annual employees’ salaries to the
retirement plan each year. The payroll records show the annual salaries as follows:
2017 P7,000,000
2018 8,100,000
On January 1, 2017, PBO Company agrees to pay a lump sum pension to its employees equal to 5
% of their final salary times the number of years work after January 1, 2017. It is estimated that the
salary of a certain employee for 2026, his last year with the company, will be P3,000,000. The
appropriate interest rate is 12%. The mathematical table shows the present value of 1 at 12% is as
follows:
8. What is the current service cost related to the employee for 2017?
A.. P 54,150 C. P 60,600
B. 150,000 D. 48,350
10. What is the current service cost related to the employee for 2018?
A. P 54,150 C. P60,600
B. 150,000 D. 48,350
11. What is the interest cost related to the employee for 2018?
A. P 0 C. P18,000
B. 6,948 D. 7,278
12. At December 31, 2018, the following information was provided by Defined Company’s pension plan
administrator:
What is the total amount of pension liability that should be shown on Defined’s December 31, 2018
balance sheet?
A. P 4,500,000 C. P2,800,000
B. 11,400,000 D. 1,700,000
13. On January 1, 2018, Postemployment Company had the following balances in its memorandum
records related to a defined plan:
The actuary provided the following information for the year ended December 31, 2018:
14. On January 1, 2018, Retirement Company provided the following data in connection with its defined
benefit plan:
The accountant revealed the following information for the year 2018:
On January 1, 2018, Pension Company has defined benefit plan with the following details:
Expected Actual
Fair value of plan assets P2,000,000
P2,750,000
Projected benefit obligation 2,400,000
2,500,000
17. On January 1, 2018, Rich Company provided the following data in connection with a defined benefit
plan:
Fair value of the plan assets P6,700,000
Projected benefit obligation 7,600,000
The accountant revealed the following information for the current year:
REQUIRED:
a. Determine the employee benefit expense for the current year.
b. Determine the “remeasurement” on December 31, 2018 to be recognized as component
of other comprehensive income.
c. Prepare journal entry to record the employee benefit expense.
d. Compute the balance of Prepaid/Accrued Benefit Cost on December 31, 2018.
e. Reconcile the general ledger of the entity with the memorandum ledger.
18. On January 1, 2018, Peter Company reported the following information in relation to a defined
benefit plan:
Fair value of the plan assets P6,500,000
Projected benefit obligation 7,500,000
During the current year, the entity determined that the current service cost was P1,200,000 and the
discount rate is 10%. The actual return on plan assets was P800,000 during the year.
REQUIRED:
a. Determine the employee benefit expense for the current year.
b. Determine the “remeasurement” on December 31, 2018 to be recognized as component
of other comprehensive income.
c. Prepare journal entry to record the employee benefit expense.
d. Compute the balance of Prepaid/Accrued Benefit Cost on December 31, 2018.
e. Reconcile the general ledger of the entity with the memorandum ledger.
19. Charot Company provided the following information concerning a defined benefit plan on January 1,
2018 prior to the adoption of PAS 19R:
Debit Credit
Fair value of the plan assets P4,750,000
Unamortized past service cost 1,250,000
Projected benefit obligation P5,500,000
Unrecognized actuarial gain 850,000
The transactions for the current year relating to the defined benefit plan are as follows:
Effective January 1, 2018, the entity has applied the provisions of PAS 19R in relation to the defined
benefit plan.
REQUIRED:
a. Prepare journal entry to recognize the transitional effect of adopting PAS 19R.
b. Determine the employee benefit expense for the current year.
c. Determine the “remeasurement” on December 31, 2018 to be recognized as component
of other comprehensive income.
d. Prepare journal entry to record the employee benefit expense.
e. Compute the balance of Prepaid/Accrued Benefit Cost on December 31, 2018.
f. Reconcile the general ledger of the entity with the memorandum ledger.
20. On January 1, 2018, Poorita Company provided the following information in relation to a defined
benefit plan:
REQUIRED:
a. Determine the fair value of the plan assets on December 31, 2018.
b. Determine the projected benefit obligation on December 31, 2018.
c. Determine the effect of asset ceiling on December 31, 2018.
d. Compute the employee benefit expense for the current year.
e. Compute the “remeasurement” on December 31, 2018 to be recognized as component
of other comprehensive income.
f. Prepare journal entry to record the employee benefit expense.
g. Reconcile the Prepaid/Accrued Benefit Cost account on December 31, 2018.
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wep/acctng100c/debtrestructuring/employeebenefits