Cornerstones of Financial Accounting
4th Edition
ISBN: 9781337690881
Author: Jay Rich, Jeff Jones
Publisher: Cengage Learning
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Textbook Question
Chapter 11, Problem 63.2C
Income,
On January L 2017, Cermack National Bank loaned 55,000,000 under a 2-year, zero coupon note to a real estate developer. The bank recognized interest revenue on this note of approximately $400,000 per year. Due to an economic downturn, the developer was unable to pay the $5,800,000
maturity amount on December 31, 2018. The bank convinced the developer to pay $800,000 on December 31, 2018, and agreed to extend $5,000,000 credit to the developer despite the gloomy economic outlook for the next several years. Thus, on December 31, 2018, the bank issued a new 2-year, zero coupon note to the developer to mature on December 31, 2020, for $6,000,000. The bank recognized interest revenue on this note of approximately $500,000 per year.
The bank’s external auditor insisted that the riskiness of the new loan be recognized by increasing the allowance for uncollectible notes by $1,500,000 on December 31, 2018, and $2,000,000 on December 31, 2019. On December 31, 20201 the bank received $1,200,000 from the developer and learned that the developer was in bankruptcy and that no additional amounts would be recovered.
Required:
Prepare a schedule showing the effect of the notes on net income in each of the 4 years.
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What is the carrying amount of the loan Receivable on December 31,2018?
What is the impairment loss to be recognized on December 31,2018?
CPA Bank Co. loaned P6,750,000 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: December 31, 2021,
P1,125,000; December 31, 2022, P1,500,000; December 31, 2023, P1,875,000 and
December 31, 2024, P2,250,000. The present value of 1 at 12% is 0.89 for one
period, 0.80 for two periods, 0.71 for three periods and 0.64 for four periods.
What is the carrying amount loan receivable as of December 31, 2021?
Cozy Bank loaned a borrower P7,500,000 on January 1, 2018.
Problem 7-6 (IAA)
The terms of the loan were payment in full on
2023, plus annual interest payment at 12%.
January 1,
The interest payment was made as scheduled on
2019. However, due to financial setbacks, the borrower w
unable to make the 2020 interest payment.
January 1,
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 dia
not continue to accrue interest for 2020 due to th
impairment of the loan.
Projected cash flows
Amount projected
on December 31, 2020
Date of cash flow
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…
Chapter 11 Solutions
Cornerstones of Financial Accounting
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