Reference no: EM132966109
Questions -
Q1) Candy, one of the Goldsmith Company's credit customers, is experiencing financial difficulties and a downward trend in its financial performance. The firm is unable to service its debts and as a result has missed the payment of its note and accrued interest with Goldsmith Company. The principal amount of the note is P500,000 (which is already due) with annual interest of 10% payable annually. Accrued interest balance at December 31, 2019 is P50,000. Candy management has negotiated a modification of its debt terms with Goldsmith Company. At this time, the prevailing market rate of interest for similar transaction remained at 10%.
Goldsmith Company agreed to the following new terms:
- Forgive the accrued interest at December 31, 2019
- Extend the payment of the principal for two years
- Reduce the interest rate (payable annually) to 8%
How much impairment loss should be recognized by Goldsmith Company on December 31, 2019?
Q2) On December 1, 2019, the State Finance Company gave Conanan Company a P2,000,000, 12% loan. Conanan Company received proceeds of P1,940,000, after deduction of non-refundable finance and other processing charges of P60,000. Principal and interest are due in 60 monthly installments of P44,500 beginning January 1, 2020. The repayment yields an effective interest rate of 13.4% based on the proceeds of P1,940,000. State Finance Company has the intention of collecting the contractual cash flows from this loan over the full term of the loan, thus, does not elect to measure this ate fair value.
How much Interest Receivable should State Finance record on December 31, 2020?