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Practice Exercises - Note Payable

This document provides practice exercises involving calculations related to notes payable and interest expense. It includes calculations for accrued interest on notes payable for various periods, as well as calculations for total interest expense and understated interest expense for a given year. It also includes calculations for gains or losses on extinguishment of debt through means such as debt for equity swaps and note restructuring.

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Shane Tabunggao
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0% found this document useful (0 votes)
99 views2 pages

Practice Exercises - Note Payable

This document provides practice exercises involving calculations related to notes payable and interest expense. It includes calculations for accrued interest on notes payable for various periods, as well as calculations for total interest expense and understated interest expense for a given year. It also includes calculations for gains or losses on extinguishment of debt through means such as debt for equity swaps and note restructuring.

Uploaded by

Shane Tabunggao
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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PRACTICE EXERCISES

1. D 18. Note payable, September 1, 1997 1,800,000


2. C Annual payments (600,000)
3. D 1,200,000
4. A x10% x 4/12
5. C Accrued interest payable 40,000
6. B
7. A 19. Note payable, Deceber 31, 1997
8. D Annual payments
9. D
10. C
11. A Interest paid from Jan 1 to Sept. 30 1998 (1,200,000 x 15% x 9/12)
12. A Interest accrued from Oct. 1 to Dec 31, 1998 (800,000 x 15% x 3/12)
13. A Interest expense - 1998
14. A
15. A 20. Interest expense from Jan 1 to Oct. 31 2020 (500,000 x 12% x 10/12)
16. A Interest expense from Feb 1 to July 31 2020 (1,500,000 x 12% x 6/12)
17. A Interest expense from May 1 to Dec 31 2020 (800,000 x 12% x 8/12)
Total interest expense - 2020
Recorded interest expense - 2020
Understated amount of interest expense - 2020

21. B. 10,000 The note payable is at face amount and is used in usual trade terms
22. Note payable 1,000,000
Accrued interest payable 120,000
Total carrying amount of liability 1,120,000
Cost of land (950,000)
Gain on extinguishment B. 170,000

1,200,000 23. QUESTION 1


(400,000) A. because it is treated as conversion of an existing debt, no actual cash is
800,000 engaged.

135,000 QUESTION 2
30,000 Carrying amount of bonds payable 5,000,000
A. 165,000 Fair value of shares issued 4,800,000
Gain on extinguishment of debt B. 200,000
50,000
90,000 24. QUESTION 1
64,000 PV of principal (3,800,000 x .926) 3,518,800
204,000 PV of interest payments (342,000 x .926) 316,692
(150,000) PV of new liability 3,835,492
A. 54,000
Note payable 4,000,000
Accrued interest payable 342,000
Carrying amount 4,320,000
PV of new liability 3,835,492
Gain before income tax C. 484,508

QUESTION 2
Gain before income tax 484,508
Transaction cost 30,000
Gain on restructuring C. 454,508

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