Reference no: EM132839884

Questions -

Q1) On Jan. 1, 2020, Cherry Bank granted a loan to a borrower. The interest on the loan is 10% payable annually on Dec. 31, 2020. The loan matures in three years on Dec. 31, 2022.

Principal amount 5,000,000

Direct origination cost incurred 457,500

Origination free charged against the borrower 200,000

After considering the origination fee charged against the borrower and the direct origination cost incurred, the effective rate on the loan is 8%.

Requirements -

a) Determine the carrying amount of the loan on Jan. 1, 2020.

b) Prepare table of amortization of the direct origination cost.

c) Prepare journal entries for 2020, 2021 and 2022.

Q2) Dove Bank loaned P10,000,000 to a borrower on Jan. 1, 2018. The terms of the loan require principal payments of P2,000,000 each year for 5 years plus interest at 8%.

The first principal and interest payment is due on Dec. 31, 2018. The borrower made the required payments on Dec. 31, 2018 and Dec. 31, 2019.

However, during 2020 the borrower began to experience financial difficulties, requiring the bank to reassess the collectability of the loan.

On Dec. 31, 2020, the bank had determined that the remaining principal payments will be collected but the collection of the interest is unlikely. The bank has accrued the interest for 2020.

Expected principal payments

Dec. 31, 2021 1,000,000

Dec. 31, 2022 2,000,000

Dec. 31, 2023 3,000,000

Present value of 1 at 8%

For one period .93

For two periods .86

For three periods .79

Requirements -

a) Compute the impairment loss on the loan receivable.

b) Prepare journal entries for 2020, 2021 and 2022.