Quiz on Loans Receivable - Mid Term Period 2 PDF

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Name: Ghillian Mae B. Guiang Section: AC 101 Date: March 19, Score: Quiz on Loans Receivable – Mid Term Period 2 ADAPTED: Conrado T. Valix, Jose F. Peralta, & Christian Aris M. Valix, Intermediate Accounting, Volume 1, 2020 Edition MULTIPLE CHOICE: ( 30 points ) Nos. 1 to 3 are related to th...

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Name: Ghillian Mae B. Guiang

Section: AC 101

Date: March 19,2021

Score: Quiz on Loans Receivable – Mid Term Period 2 ADAPTED: Conrado T. Valix, Jose F. Peralta, & Christian Aris M. Valix, Intermediate Accounting, Volume 1, 2020 Edition MULTIPLE CHOICE: ( 30 points ) Nos. 1 to 3 are related to the following information: Moderate 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 three years on December 31, 2022. Principal amount Direct origination cost incurred Indirect origination cost incurred Origination fee received from the borrower

5,000,000 100,000 50,000 340,000

After considering the origination fee received from the borrower and the direct origination cost incurred, the effective rate on the loan is 12%. 1. What is the carrying amount of the loan receivable on January 1, 2020? a. 4,760,000 b. 5,000,000 c. 4,810,000 d. 4,660,000 2. What is the interest income for 2020? a. 571,200 b. 500,000 c. 476,000 d. 547,200 3. What is the carrying amount of the loan receivable on December 31, 2020?

a. 5,000,000 b. 4,760,000 c. 4,831,200 d. 4,910,944 Nos. 4 to 7 are related to the following information: Solid Bank loaned P5,000,000 to a borrower on January 1, 2018. The terms of the loan require principal payments of P1,000,000 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 an Annuity Due of 1 at 8% For three periods

2.783

4. What is the impairment loss for 2020? a. 423,000 b. 217,000 c. 222,000 d.

0

5. What is the interest income for 2021? ( Hint: Deduct the initial collection from the present value of Dec. 31, 2020 before multiplying effective interest rate) a. 126,160 b. 142,640 c. 240,000 d.

0

6. What is the carrying amount of the loan receivable on December 31, 2021? a. 2,000,000 b. 1,925,640 c. 1,640,360 d. 1,783,000 Nos. 7 to 9 are related to the following information: Global Bank loaned P9,000,000 to a borrower 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 has accrued the interest on December 31, 2019, but did not continue to accrue interest for 2020 due to the impairment of the loan. The projected cash flows are: Date of cash flow

Amount projected on December 31, 2020

December 31, 2021

1,500,000

December 31, 2022

2,000,000

December 31, 2023

2,500,000

December 31, 2024

3,000,000

The present value of 1 at 12% is .89 for one period, .80 for two periods, .71 for three periods, and .64 for four periods. 7. What is the loan impairment loss for 2020? a. 2,370,000 b. 3,450,000 c. 6,630,000 d. 2,450,000 8. What is the interest income for 2021?

a. 795,600 b. 900,000 c. 180,000 d.

0

9. What is the carrying amount of the loan receivable on December 31, 2021? a. 5,925,600 b. 4,845,600 c. 6,330,000 d. 7,500,000 The following information relate to No. 10: On January 1, 2020, Oregon Bank recorded an investment of P5,000,000 in a loan granted to a client. The loan has a 10% effective interest rate payable annually every December 31. The principal is due in full at maturity on December 31, 2023. Unfortunately, the borrower is experiencing significant financial difficulty and will have difficult time in making full payment. The bank projected that the entire principal will be paid at maturity and 4% interest or P200,000 will be paid annually on December 31 of the next three years. There is no accrued interest on December 31, 2020. The present value of 1 at 10% for three periods is 0.75 and the present value of an ordinary annuity of 1 at 10% for three periods is 2.49. 10. What is the impairment loss for 2020? a. 752,000 b. 600,000 c. 250,000 d. 748,000

SOLUTIONS: 1. Principal Amount

P 5,000,000

Origination Fee received from customer

340,000

Direct origination cost incurred

(100,000)

Carrying Amount

P 4,760,000

2. Interest Income (P 4,760,000 x 12%)

P 571,200

3. Loan Receivable

P 5,000,000

Unearned Interest Income (240,000 – 71,200)

(168,800)

Carrying Amount

P 4,831,200

Amortization: Interest Income Interest Received Amortization

P 571,200 (500,000) P 71,200

4. Loan Receivable Present Value of Loan (1,000,000 x 2.783) Impairment Loss

5.

P 3,000,000 2,783,000 P 217,000

Loan Receivable (2020) Allowance for Loan Impairment

P 2,000,000 (217,000)

Carrying Amount

P 1,783,000

Interest Income (1,783,000 x 8%)

P 142,600

6. Loan Receivable Allowance for Loan Impairment (217,000 – 142,600) Carrying Amount

P 2,000,000 (74,360) P 1,925,640

7. December 21, 2021

P 1,335,000

December 21, 2022

1,600,000

December 21, 2023

1,775,000

December 21, 2024

1,920,000

Present Value

P 6,630,000

Loan Receivable

P 9,00,0000

Accrued Interest Receivable Carrying Amount Present Value Impairment Loss

1,080,000 P 10,080,000 (6,630,000) P 3,450,000

8. Interest Income (P 6,630,000 x 12%)

P 795,600

9. Loan Receivable

P 7,500,000

Allowance for Impairment (2,730,000 – 795,600)

(1,574,400)

Carrying Amount

P 5,925,600

10. Present Value of Principal (P5,000,000 x 0.75) Present Value of Interest (P 200,000 x 2.49) Total Present Value Carrying Amount Impairment Loss

P 3,750,000 498,000 P 4,248,000 (5,000,000) P 752,000...