Problem 7-13 (IAA)On December 31, 2020, London Bank granted a P5,000,000Joan to a borrower with 10% stated rate payable annuallyand maturing in 5 years. The loan was discounted at themarket interest rate of 12%.Unfortunately, the financial condition of the borrowerworsened because of lower revenue.On December 31, 2022, the bank determined that theborrower would pay back only P3,000,000 of the principal atmaturity.However, it was considered likely that interest wouldcontinue to be paid on the P5,000,000 loan.The present value of 1 at 12% is .57 for five periods and .71for three periods.The present value of an ordinary annuity of 1 at 12% is 3.60for five periods and 2.40 for three periods.2. What is the carrying amount of the loan receivable onDecember 31, 2022?a. 4,650,000b. 4,790,000c. 4,772,960d. 4,720.000

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2. What is the carrying amount of the loan receivable on December 31, 2022?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Amortized Loans

The term "amortization" refers to spreading the value of a loan or a debt over a series of regular payments or installments comprising of both the principal and interest amount. It generally involves the process where in the value of a loan or an intangible asset is written down over its maturity period.

Question

Problem 7-13 (IAA)
On December 31, 2020, London Bank granted a P5,000,000
Joan to a borrower with 10% stated rate payable annually
and maturing in 5 years. The loan was discounted at the
market interest rate of 12%.
Unfortunately, the financial condition of the borrower
worsened because of lower revenue.
On December 31, 2022, the bank determined that the
borrower would pay back only P3,000,000 of the principal at
maturity.
However, it was considered likely that interest would
continue to be paid on the P5,000,000 loan.
The present value of 1 at 12% is .57 for five periods and .71
for three periods.
The present value of an ordinary annuity of 1 at 12% is 3.60
for five periods and 2.40 for three periods.
2. What is the carrying amount of the loan receivable on
December 31, 2022?
a. 4,650,000
b. 4,790,000
c. 4,772,960
d. 4,720.000

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