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?

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?

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter11: The Statement Of Cash Flows

Section: Chapter Questions

Problem 63.2C: Income, Cash Flow, and Future Losses On January L 2017, Cermack National Bank loaned 55,000,000...

See similar textbooks

Similar questions

On January 1, 2019, Northfield Corporation becomes delinquent on a 100,000, 14% note to First National Bank, on which 16,651 of interest has accrued. On January 2, 2019, the bank agrees to restructure the note. It forgives the accrued interest, extends the repayment date to December 31, 2021, and reduces the interest rate to 10%. Required: Prepare a schedule for Northfield to compute the annual interest expense in regard to the preceding note for each year of the restructuring agreement.
On January 1, 2019, Park Company accepted a 36,000, non-interest-bearing, 3-year note from a major customer in exchange for used equipment. The equipment had originally cost Park 200,000 and had a book value of 20,000 on the date of the sale. At the 12% imputed interest rate for this type of loan, the present value of the note is 25,500 on January 1, 2019. Park uses the effective interest rate. What is the carrying value of the note receivable on Parks December 31, 2019, balance sheet? a. 28,560 b. 29,000 c. 32,500 d. 36,000
Income, Cash Flow, and Future Losses 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 banks 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.
Income, Cash Flow, and Future Losses 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 banks 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: 1. Prepare a schedule showing annual cash flows fur the two notes in each of the 4 years.
Income, Cash Flow, and Future Losses 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 banks 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: Which figure, net income or net cash flow, does the better job of telling the banks stock-holders about the effect of these notes on the bank? Explain by reference to the schedules prepared in Requirements 1 and 2.
On January 1, 2018, King Inc. borrowed $150,000 and signed a 5-year, note payable with a 10% interest rate. Each annual payment is in the amount of $39,569 and payment is due each Dec. 31. What is the journal entry on Jan. 1 to record the cash received and on Dec. 31 to record the annual payment? (You will need to prepare the first row in the amortization table to determine the amounts.)
Marmol Corporation uses the allowance method for bad debts. During 2019, Marmol charged 50,000 to bad debt expense and wrote off 45,200 of uncollectible accounts receivable. These transactions resulted in a decrease in working capital of: a. 0 b. 4,800 c. 45,200 d. 50,000
Hamlet Corporation purchases computer equipment at a price of 100,000 on January 1, 2019, paying 40,000 down and agreeing to pay the balance in three 20.000 annual instalments beginning December 31, 2019. It is not possible to value either the equipment or the 60,000 note directly; how-ever, Hamlet's incremental borrowing rate is 12%. Required: 1. Prepare a schedule to compute the interest expense and discount amortization on the note. 2. Prepare all the journal entries for Hamlet to record the issuance of the note, each annual interest expense, and the three annual installment payments.
Spath Company borrows 75,000 by issuing a 4-year, noninterest-bearing note to a customer on January 1, 2019. In addition, Spath agrees to sell inventory to the customer at reduced prices over a 5-year period. Spaths incremental borrowing rate is 12%. The customer agrees to purchase an equal amount of inventory each year over the 5-year period so that a straight-line method of revenue recognition is appropriate. Required: Prepare the journal entries on Spaths books for 2019 and 2020. (Round answers to 2 decimal places.)