Loans-Receivable-Problems PDF

Preview

Summary

Problem 7-Nasty bank granted a loan to a borrower on January 1, 2020. The interest on the loan is 10% payable annually starting December 31, 2020. The Loan matures in 3 years on December 31, 2020.Principal Amount 4,000, Direct Origination 150, Origination fee received from the borrower 342,After con...

Description

Problem 7-1 Nasty bank granted a loan to a borrower on January 1, 2020. The interest on the loan is 10% payable annually starting December 31, 2020. The Loan matures in 3 years on December 31, 2020. Principal Amount Direct Origination Origination fee received from the borrower

4,000,000 150,000 342,100

After considering the origination fee received from the borrower and the direct origination cost incurred, the effective rate on the loan is 12%. Required: Prepare journal entries for 2020, 2021, 2022.

7-1 Answer: Solution: Principal Amount Origination Fee received from the borrower Direct Origination cost incurred

4,000,000 (342,100) 150,000

Initial Carrying amount of loan

3,807,900

Journal Entries- January 1, 2020 1. to record the loan: Loan Receivable 4,000,000 Cash 4,000,000 2. to record the origination fees received from the borrower: Cash 342,100 Unearned Interest Income 342,100 3. to record the direct origination cost incurred by the bank: Unearned Interest Income 150,000 Cash 150,000 Amortization Table

DATE

INTEREST RECEIVED (Principal Amount*Nominal rate)

INTEREST INCOME (Carrying Amount*Effective rate

AMORTIZATION (Interest received – Interest Income

Jan. 1, 2020

CARRYING AMOUNT

3,807,900

Dec. 31, 2020

400,000 (4,000,000*10%)

456,948 (3,807,900*12%)

Dec. 31, 2021

400,000 (4,000,000*10%)

463,781.76 (3,864,848*12%)

Dec. 31. 2022

400,000 (4,000,000*10%)

471,370.24

1. Journal Entry- December 31, 2020 Cash Interest Income Unearned Interest Income Interest Income Journal Entry- December 31, 2021 Cash Interest Income Unearned Interest Income Interest Income Journal Entry- December 31, 2022 Cash Interest Income

56,948 (400,000 – 456,948) 63,781.76 (400,000 – 463,781.76) 71,370.24

400,000 400,000 56,948 56,948

400,000 400,000 63,781.76 63,781.76

400,000 400,000

3,864,848 3,928,629.76 4,000,000

Unearned Interest Income Interest Income

71,370.24

Cash

4,000,000 Loan Receivable

71,370.24 4,000,000

Problem 7-2 Awesome Bank granted a loan to a borrower on January 1, 2020. The interest rate on the loan is 10% payable annually starting December 31, 2020. The loan matures in 5 years on December 31, 2024. Principal Amount Direct Origination Origination fee received from the borrower

4,000,000 61,500 350,000

Required: 1. Compute the carrying amount of the loan receivable on January 1, 2020. 2. Prepare a table of amortization for the loan receivable. 3. Prepare the journal entries for 2020 and 2021.

7-2 Answer: Solution: 1. Principal Amount Origination Fee received from the borrower Direct Origination cost incurred

4,000,000 (350,000) 61,500

Initial Carrying amount of loan

3,711,500

Journal Entries- January 1, 2020 1. to record the loan: Loan Receivable 4,000,000 Cash 4,000,000 2. to record the origination fees received from the borrower: Cash 350,000 Unearned Interest Income 350,000 3. to record the direct origination cost incurred by the bank: Unearned Interest Income 61,500 Cash 61,500 2. Amortization Table INTEREST RECEIVED (Principal DATE Amount*Nominal rate) Jan. 1, 2020

INTEREST INCOME (Carrying Amount*Effective rate

AMORTIZATION (Interest received – Interest Income

CARRYING AMOUNT

3,711,500

Dec. 31, 2020

400,000 (4,000,000*10%)

445,380 (3,711,500*12%)

Dec. 31, 2021

400,000 (4,000,000*10%)

450,825.6 (3,756,880*12%)

Dec. 31, 2022

400,000 456,924.7 (4,000,000*10%) (3,807,705.6*12%)

Dec. 31, 2023

400,000 463,755.6 (4,000,000*10%) (3,864,630.3*12%)

Dec. 31, 2024

400,000 (4,000,000*10%)

3. Journal Entry- December 31, 2020 Cash Interest Income Unearned Interest Income Interest Income Journal Entry- December 31, 2021 Cash Interest Income

471,614.1

45,380 (400,000 – 445,380) 50,825.6 (400,000 – 450,825.6) 56,924.7 (400,000 – 456,924.7) 63,755.6 (400,000 – 463,630.3) 71,614.1

400,000 400,000 45,380 45,380

400,000 400,000

3,756,880

3,807,705.6 3,864,630.3 3,928,385.9 4,000,000

Unearned Interest Income Interest Income

50,825.6

50,825.6

Problem 7-3 Pauper Bank granted a loan to a borrower on January 1, 2020. The interest on the loan is 8% payable annually starting December 31, 2020. The loan matures in 3 years on December 31, 2022. Principal Amount Direct Origination Origination fee received from the borrower

3,000,000 260,300 100,000

After considering the origination fee charged to the borrower and the direct origination cost incurred, the effective rate on the loan is 6%. Required: 1. Prepare journal entries for 2020, 2021, 2022. 2. Present the loan receivable on December 31, 2020.

7-3 Answer: Solution: Direct Origination Cost Incurred Origination Fee received Net Direct Origination Cost Loan Receivable

260,300 (100,000) 160,300 3,000,000

Carrying Amount of Loan Receivable- Jan. 1, 2016

3,160,000

Principal Amount Origination Fee received from the borrower Direct Origination cost incurred

3,000,000 (100,000) 260,300

Initial Carrying amount of loan

3,160,300

DATE

Jan. 1, 2020 Dec. 31, 2020 Dec. 31, 2021 Dec. 31. 2022

INTEREST RECEIVED (Principal Amount*Nominal rate)

INTEREST INCOME (Carrying Amount*Effective rate

AMORTIZATION (Interest received – Interest Income

CARRYING AMOUNT

3,160,300 240,000 (3,000,000*8%) 240,000 (3,000,000*8%) 240,000 (3,000,000*8%)

189,618 (3,160,300*6%) 186,595.08 (3,109,918*6%) 183,486.92

50,382 53,404.92

3,056,513.08

56,513.08

4,000,000

1. Journal Entry- January 1, 2020 Loan Receivable Cash

3,000,000 3,000,000

Cash

100,000 Direct Origination Cost

Direct Origination Cost Cash Journal Entry- December 31, 2020 Cash Interest Income Interest Income Direct Origination Cost Journal Entry- December 31, 2021 Cash Interest Income Interest Income Direct Origination Cost Journal Entry- December 31, 2022

3,109,918

100,000 260,300 260,300

240,000 240,000 50,382 50,382

240,000 240,000 53,404.92 53,404.92

Cash

Interest Income

Interest Income Direct Origination Cost

240,000

240,000

56,513.08 56,513.08

2. Loan Receivable Direct Origination Cost-Dec. 31, 2020 (D.O.C-Jan.1,2020- Amortization of 2020) (160,300 – 50,382) Loan Receivable- Dec. 31,2020

3,000,000

109,918 3,109,918

Problem 7-10 Solid Bank loaned Php5,000,000 to a borrower on January 1, 2018. The term of the loan requires principal payments of Php1,000,000 each year for 5 years plus interest at 8%. The first principal and interest payment is due on January 1, 2019. The borrower made the required payments during 2019 and 2020. However, during 2020 the borrower began to experience financial difficulties, requiring the bank to reassess the collectability of the loan. On December 31, 2020, the bank has determined that the remaining principal payment will be collected as originally scheduled but the collection of the interest is unlikely. The bank did not accrue the interest on December 31, 2020. Present Value of 1 at 8% For one period For two periods For three periods

0.926 0.857 0.794

1. What is the impairment loss of 2020? a. 423,000 c. 222,000 b. 217,000 d. 0 2. What is the interest income for 2021? a. 126,160 c. 222,000 b. 142,640 d. 0 3. What is the carrying amount of the loan receivable on December 31, 2021. a. 2,000,000 c. 1,640,360 b. 1,925,640 d. 1,783,000...