Reference no: EM132867453
Problem - Davao Bank loaned P7,500,000 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 its 2020 interest payment and Davao Bank considers the loan impaired and projects the cash flows from the loan as of December 31, 2020. The bank has accrued the interest at December 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 as of Dec. 31, 2020
December 31, 2021 500,000
December 31, 2022 1,000,000
December 31, 2023 2,000,000
December 31, 2024 4,000,000
The present value at l2% is as follows:
For one period 0.89
For two periods 0.80
For three periods 0.71
For four periods 0.64
Required -
1. Compute the impairment loss of the loan receivable on December 31, 2020.
2. Table of amortization for the loan receivable.
3. Prepare journal entries for 2018 - 2024.