Problem 7-7 (IAA) On December 31, 2020, Durable Bank has a loan receivable of P4,000,000 from a borrower that it is carrying at face amount and is due on December 31, 2025. Interest on the loan is payable at 9% each December 21. The borrower paid the interest due on December 31, 2020 but informed the bank that it would probably miss the next two years' interest payments because of financial difficulty. After that, the borrower is expected to resume the annual interest payment but it would make the principal payment one year late, with interest paid for that additional year at the time of principal payment. Present value of 1 at 9% .917 One period Two periods Three periods Four periods Five periods Six periods .842 .772 .708 .650 .596 Required: 1. Compute the present value of the loan receivable on December 31, 2020. 2. Compute the impairment loss to be recognized on December 31, 20120. 0. Prepare journal entries from 2020 to 2026.
Problem 7-7 (IAA) On December 31, 2020, Durable Bank has a loan receivable of P4,000,000 from a borrower that it is carrying at face amount and is due on December 31, 2025. Interest on the loan is payable at 9% each December 21. The borrower paid the interest due on December 31, 2020 but informed the bank that it would probably miss the next two years' interest payments because of financial difficulty. After that, the borrower is expected to resume the annual interest payment but it would make the principal payment one year late, with interest paid for that additional year at the time of principal payment. Present value of 1 at 9% .917 One period Two periods Three periods Four periods Five periods Six periods .842 .772 .708 .650 .596 Required: 1. Compute the present value of the loan receivable on December 31, 2020. 2. Compute the impairment loss to be recognized on December 31, 20120. 0. Prepare journal entries from 2020 to 2026.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
ChapterM: Time Value Of Money Module
Section: Chapter Questions
Problem 4P: Determining Loan Repayments Jerry Rockness needs 40,000 to pay off a loan due on December 31, 2028....
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Question
Transcribed Image Text:Problem 7-7 (IAA)
On December 31, 2020, Durable Bank has a loan receivable
of P4,000,000 from a borrower that it is carrying at face
amount and is due on December 31, 2025.
Interest on the loan is payable at 9% each December 31.
The borrower paid the interest due on December 31, 2020
but informed the bank that it would probably miss the next
two years' interest payments because of financial difficulty.
After that, the borrower is expected to resume the annual
interest payment but it would make the principal payment
one year late, with interest paid for that additional year at
the time of principal payment.
Present value of 1 at 9%
.917
One period
Two periods
Three periods
Four periods
Five periods
Six periods
.842
.772
.708
.650
.596
Required:
1. Compute the present value of the loan receivable on
December 31, 2020.
2. Compute the impairment loss to be recognized on
December 31, 20120.
3. Prepare journal entries from 2020 to 2026.
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