Problem 7-13 (IAA) On December 31, 2020, London Bank granted a P5,000,000 loan to a borrower with 10% stated rate payable annually and maturing in 5 years. The loan was discounted at the market interest rate of 12%. Unfortunately, the financial condition of the borrower worsened because of lower revenue. On December 31, 2022, the bank determined that the borrower would pay back only P3,000,000 of the principal at maturity. However, it was considered likely that interest would continue to be paid on the P5,000,000 loan. The present value of 1 at 12% is .57 for five periods and .71 for three periods. The present value of an ordinary annuity of 1 at 12% is 3.60 for five periods and 2.40 for three periods. 1. What is the amount of cash paid to the borrower on December 31, 2020? а. 4,400,000 b. 4,500,000 с. 5,000,000 d. 4,650,000 2. What is the carrying amount of the loan receivable on December 31, 2022? a. 4,650,000 b. 4,790,000 с. 4,772,960 d. 4,720,000 3. What is the impairment loss on loan receivable to be recognized for 2022? a. 2,000,000 b. 1,442,960 с. 1,922,960 d. 1,670,000
Problem 7-13 (IAA) On December 31, 2020, London Bank granted a P5,000,000 loan to a borrower with 10% stated rate payable annually and maturing in 5 years. The loan was discounted at the market interest rate of 12%. Unfortunately, the financial condition of the borrower worsened because of lower revenue. On December 31, 2022, the bank determined that the borrower would pay back only P3,000,000 of the principal at maturity. However, it was considered likely that interest would continue to be paid on the P5,000,000 loan. The present value of 1 at 12% is .57 for five periods and .71 for three periods. The present value of an ordinary annuity of 1 at 12% is 3.60 for five periods and 2.40 for three periods. 1. What is the amount of cash paid to the borrower on December 31, 2020? а. 4,400,000 b. 4,500,000 с. 5,000,000 d. 4,650,000 2. What is the carrying amount of the loan receivable on December 31, 2022? a. 4,650,000 b. 4,790,000 с. 4,772,960 d. 4,720,000 3. What is the impairment loss on loan receivable to be recognized for 2022? a. 2,000,000 b. 1,442,960 с. 1,922,960 d. 1,670,000
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter22: Providing And Obtaining Credit
Section: Chapter Questions
Problem 4P: Gifts Galore Inc. borrowed 1.5 million from National City Bank. The loan was made at a simple annual...
Related questions
Question
Transcribed Image Text:Problem 7-13 (IAA)
On December 31, 2020, London Bank granted a P5,000,000
loan to a borrower with 10% stated rate payable annually
and maturing in 5 years. The loan was discounted at the
market interest rate of 12%.
Unfortunately, the financial condition of the borrower
worsened because of lower revenue.
On December 31, 2022, the bank determined that the
borrower would pay back only P3,000,000 of the principal at
maturity.
However, it was considered likely that interest would
continue to be paid on the P5,000,000 loan.
The present value of 1 at 12% is .57 for five periods and .71
for three periods.
The present value of an ordinary annuity of 1 at 12% is 3.60
for five periods and 2.40 for three periods.
1. What is the amount of cash paid to the borrower on
December 31, 2020?
а. 4,400,000
b. 4,500,000
с. 5,000,000
d. 4,650,000
2. What is the carrying amount of the loan receivable on
December 31, 2022?
а. 4,650,000
b. 4,790,000
c. 4,772,960
d. 4,720,000
3. What is the impairment loss on loan receivable to be
recognized for 2022?
a. 2,000,000
b. 1,442,960
с. 1,922,960
d. 1,670,000
219
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Financial Reporting, Financial Statement Analysis…
Finance
ISBN:
9781285190907
Author:
James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:
Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:
9781337690881
Author:
Jay Rich, Jeff Jones
Publisher:
Cengage Learning
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Financial Reporting, Financial Statement Analysis…
Finance
ISBN:
9781285190907
Author:
James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:
Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:
9781337690881
Author:
Jay Rich, Jeff Jones
Publisher:
Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Fundamentals Of Financial Management, Concise Edi…
Finance
ISBN:
9781337902571
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning