CHAPTER 7 LOANS RECEIVABLE Problem 7-6 PDF

Preview

Summary

Cozy Bank loaned a borrower P7,500,000 on January 1,2018. The terms of the loan were
payment in full on January 1, 2023, plus annual interest payment at 12%.

The interest payment was made as scheduled on January 1, 2019. However, due to
financial setbacks, the borrower was u...

Description

PROBLEM 7-6 Cozy Bank loaned a borrower P7,500,000 on January 1,2018. The terms of the loan were payment in full on January 1, 2023, plus annual interest payment at 12%. The interest payment was made as scheduled on January 1, 2019. However, due to financial setbacks, the borrower was unable to make the 2020 interest payment. The bank considered the loan impaired and projected the cash flows from the loan on December 31,2020. The bank accrued the interest on December 31, 2019, but did not continue to accrue interest for 2020 due to the impairment of the loan. Projected cashflows Date of cash flow

Amount projected on Decemeber 31, 2020

.December 31, 2021 .December 31, 2022 .December 31, 2023 .December 31, 2024

500,000 1,000,000 2,000,000 4,000,000

Present value of 1 at 12% For one period For two periods For three periods For four periods

0.89 0.80 0.71 0.64

Required: 1. Compute the present value of the loan receivable on December 31, 2020. 2. Compute the impairment loss on the loan receivable. 3. Prepare journal entries for 2020, 2021 and 2022.

2020

2021

2022

Answer: Requirement 1 .December 31, 2021 (500,000*0.89) .December 31, 2022 (1,000,000*0.80) .December 31, 2023 (2,000,000*0.71) .December 31, 2024 (4,000,000*0.64) Total present value of loan

445,000 800,000 1,420,000 2,560,000 5,225,000

Requirement 2 Loan receivable Accrued interest receivable (12%*7,500,000) Total carrying amount Present value of loan Impairment loss

7,500,000 900,000 8,400,000 5,225,000 3,175,000

Requirement 3 Impairment loss Accrued interest receivable Allowance for loan impairment

3,175,000 900,000 2,275,000

Cash Loan receivable

500,000

Allowance for loan impairment Interest income (12%*5,225,000)

627,000

500,000

627,000

Cash Loan receivable Allowance for loan impairment Interest income

Loan receivable - Dec. 31, 2021 Allowance for loan impairment (2,275,000 - 627,000) Carrying amount - Dec. 31, 2021

Interest income for 2022 (12%* 5,352,000)

1,000,000 1,000,000 642,240 642,240

7,000,000 -1,648,000 5,352,000

642,240...