South-western Federal Taxation 2018: Individual Income Taxes
41st Edition
ISBN: 9781337385886
Author: William H. Hoffman, James C. Young, William A. Raabe, David M. Maloney, Annette Nellen
Publisher: Cengage Learning
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Question
Chapter 18, Problem 49P
a.
To determine
Provide information on the effects of the transactions on the taxable income of R Company for the year 2018.
b.
To determine
Provide information on the accounting treatment of reserves if R Company has used the reserve method to compute his taxable income for the 10 years the company has been in existence.
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Noel Bank loaned 9,000,000 to a borrower on January 1, 2017. The terms of the loan were payment in full on January 1, 2022, plus annual interest payment at 12%. The debtor paid interest on January 1, 2018 as scheduled. However, due to financial setbacks, the debtor was unable to pay interest on 2019. BPI accrued interest on Dec. 31, 2018 but did not continue to accrue interest for 2019 due to considered impairment of the loan. On December 31, 2019, BPI projected these cash flows:
December 31, 2020 - P 1,500,000
December 31, 2021 - 2,000,000
December 31, 2022 - 3,000,000
December 31, 2023 - 2,500,000
The present value of 1 at 12% is as follows:
For 1 period - 0.8929
For 2 periods - 0.7972
For 3 periods - 0.7118
For 4 periods - 0.6355
How much should be recognized as interest income for 2020?
Noel Bank loaned 9,000,000 to a borrower on January 1, 2017. The terms of the loan were payment in full on January 1, 2022, plus annual interest payment at 12%. The debtor paid interest on January 1, 2018 as scheduled. However, due to financial setbacks, the debtor was unable to pay interest on 2019. Noel Bank accrued interest on Dec. 31, 2018 but did not continue to accrue interest for 2019 due to considered impairment of the loan. On December 31, 2019, Noel Bank projected these cash flows:
December 31, 2020 - P 1,500,000
December 31, 2021 - 2,000,000
December 31, 2022 - 3,000,000
December 31, 2023 - 2,500,000
The present value of 1 at 12% is as follows:
For 1 period - 0.8929
For 2 periods - 0.7972
For 3 periods - 0.7118
For 4 periods - 0.6355
How much is the impairment loss to be recognized on December 31, 2019?
Details for one of the loan of BB Company that is probably impaired during the period is as follows:
The company made a loan of P40,000,000 to a customer with similar credit risk to BB Company on January 1, 2021.
Interest is receivable on this loan at the end of each year at 2% per annum for the next five years.
The loan was properly recorded and classified as amortized cost.
The company made and initial assessment of the loan and the total expected credit losses over the life of the loan was P1,000,000. The discount rate applicable was at 2%.
On January 1, 2021, the probability of default over the next 12 months was 5%.
At December 31, 2021, there was a significant increase in the credit risk on the loan made by BB Company, the expert assessed that the total expected credit losses over the life of the loan was increase to P2,200,000. The discount rate applicable was at 2%.
How much is the balance of the allowance for credit losses as of December 31, 2021?
Chapter 18 Solutions
South-western Federal Taxation 2018: Individual Income Taxes
Ch. 18 - Prob. 1DQCh. 18 - Prob. 2DQCh. 18 - Prob. 3DQCh. 18 - Prob. 4DQCh. 18 - Prob. 5DQCh. 18 - Prob. 7DQCh. 18 - Prob. 8DQCh. 18 - Prob. 9DQCh. 18 - Prob. 10DQCh. 18 - Prob. 12DQ
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