Reference no: EM132853372

Problem 1 - Cherry Bank granted a loan to a borrower on Jan. 1, 2020. The interest on the loan is 10% payable annually starting Dec. 31, 2020. The loan matures in three years on Dec. 31, 2022.

Principal amount 5,000,000

Direct origination cost incurred 100,000

Indirect origination cost incurred 50,000

Origination fee received from the borrower 340,000

After considering the origination fee received from the borrower and the direct origination cost incurred, the effective rate on the loan is 12%.

Requirements -

1) What is the carrying amount of the loan receivable on Jan. 1, 2020?

a) 4,760,000

b) 5,000,000

c) 4,,810,000

d) 4,660,000

2) What is the interest income for 2020?

a) 571,200

b) 500,000

c) 476,000

d) 547,200

3) What is the carrying amount of the loan receivable on Dec. 31, 2020?

a) 5,000,000

b) 4,760,000

c) 4,831,200

d) 4,910,944

Problem 2 - Dove Bank loaned P9,000,000 to a borrower on Jan. 1, 2018. The terms of the loan were payment in full on Jan. 1, 2023, plus annual interest payment at 12%.

The interest payment was made as scheduled on Jan. 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 Dec. 31, 2020.

The bank has accrued the interest on Dec. 31, 2019, but did not continue to accrue interest for 2020 due to the impairment of the loan. The projected cash flows are:

Date of Cash Flow Amount projected on Dec. 31, 2020

Dec. 31, 2021 1,500,000

Dec. 31, 2022 2,000,000

Dec. 31, 2023 2,500,000

Dec. 31, 2024 3,000,000

The present value of 1 at 12% is .89 for one period, .80 for two periods, .71 for three periods, and .64 for four periods.

Requirements -

a) Compute the impairment loss on year 2020.

b) Compute the allowance for loan impairment on Dec 31, 2020.

c) Compute the carrying amount of the loan on Dec 31, 2020.

d) Compute the carrying amount of the loan on Dec 31, 2021.

e) Compute the carrying amount of the loan on Dec 31, 2022.

f) Journal entries from 2020 to 2022.