Reference no: EM132886559

Problem 1 - Provide the necessary answers for each requirement and show your solution to each question.

Enigmatic Company granted a loan to a borrower on January 1, 2020. The interest on the loan is 8% payable annually starting December 31, 2019. The loan matures in three years on December 31, 2022.

Principal P3,000,000

Direct origination cost incurred 260,300

Origination fee charged against the borrower 100,000

After considering the origination fee charged to the borrower and the direct origination cost incurred, the effective rate on the loan is 6%.

Required -

1. Prepare amortization table.

2. Prepare the journal entries for 2020, 2021 and 2022.

3. Present the loan receivable on December 31, 2020 statement of financial position.

Problem 2 - Crazy Lending Institution loaned a borrower P7,500,000 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 the 2020 interest payment. The bank considered the loan impaired and projected the cash flows from the loan on December 31, 2020.

The bank accrued the interest on December 31, 2019, but did not continue to accrue interest for 2020 due to the impairment of the loan.

Projected cash flows Amount projected on December 31, 2020

December 31, 2021 P500,000

December 31, 2022 1,000,000

December 31, 2023 2,000,000

December 31, 2024 4,000,000

Present value of 1 at 12%

For one period 0.89

For two period 0.80

For three periods 0.71

For four periods 0.64

Required -

1. Compute the present value of the loan receivable on December 31, 2020.

2. Compute the impairment loss on the loan receivable.

3. Prepare journal entries 2020, 2021, 2022.