On January 1, 2022, Strive Bank loaned P2,000,000 to Strike Company.Under the loan agreement, the loan interest rate is 10% and that StrikeCompany is to pay interest on the loan annually every December 31starting December 31, 2022. The loan will mature on December 31,2026.On December 31, 2022, Strive Bank has determined that there is aslight increase in the credit risk of the loan, therefore needs to measurethe 12-month expected credit loss for the loan. The bank determined thatthe probability of the loan being in default over the next 12 months is 1%and that 20% of the principal amount will be lost over the term of the loan.On December 31, 2023, the bank has determined that there is a significantincrease in the credit risk of the loan. The probability of the loan being indefault over the life of the loan is 10% and that 25% of the principalamount will be lost over the term of the loan. During 2024, the companybegan to face financial difficulties. On December 31, 2024, the bankconsidered the loan to be impaired. Interest for 2024 was collected.However, only 40% of the principal amount is expected to be received atmaturity date. How much of the interest income shall be reported for2025? Use appropriate present value factors rounded off to four decimalplaces.Your answer

Credit risk of loan is the default in the payment of the loan amount due to the financial…

Answered: On January 1, 2022, Strive Bank loaned…

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter5: Introduction To Business Expenses

Section: Chapter Questions

Problem 61P

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