On January 1, 2015, Mundo Inc. gave a loan to XYZ Enterprises amounting to P100,000 and received a two year, six percent P100,000 note. The note calls for annual interest to be paid each December 31. The company collected the 2015 interest on schedule. At December 31, 2016, however, based on XYZ's recent financial problems, Mundo expects that the 2016 interest will not be collected and that only P60,000 of the principle due December 31, 2016 will be collected. The P60,000 principal amount is expected to be collected in two equal installments on December 31, 2018 and December 31, 2020. Mundo believes that 6% is the market's assessment of the time value of money. Required: 1. Assume that Mundo Inc. collects the expected payments from XYZ. What entries should be made on December 31, 2017? December 31, 2018 December 31, 2019 and December 31, 2020?
Impairment of Loan Receivable
On January 1, 2015, Mundo Inc. gave a loan to XYZ Enterprises amounting to P100,000 and
received a two year, six percent P100,000 note. The note calls for annual interest to be paid
each December 31. The company collected the 2015 interest on schedule.
At December 31, 2016, however, based on XYZ's recent financial problems, Mundo expects
that the 2016 interest will not be collected and that only P60,000 of the principle due December
31, 2016 will be collected.
The P60,000 principal amount is expected to be collected in two equal installments on
December 31, 2018 and December 31, 2020.
Mundo believes that 6% is the market's assessment of the time value of money.
Required:
1. Assume that Mundo Inc. collects the expected payments from XYZ. What entries should
be made on December 31, 2017? December 31, 2018 December 31, 2019 and
December 31, 2020?
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