Reference no: EM132742327
Question: Maharlika bank loaned P10,000,000 to XYZ Company on January 1, 2018.
The term of the loan requires principal payment of P2,000,000 each year for 5 years plus interest at 12%.
The first principal and interest payment are due on December 31, 2018. XYZ Company made the required payments on December 31, 2018 and December 31, 2019.
However, during 2020, XYZ Company began to experience financial difficulties and was unable to make the required principal and interest payment on December 31, 2020.
On December 31, 2020, Maharlika Bank assessed the collectability of the loan and has determined that the remaining principal payments will be collected but the collection of the interest is unlikely.
The loan receivable has carrying amount of P6,720,000 including the accrued interest of P720,000 on December 31, 2020. Maharlika Bank projected the cash flows from the loan on December 31, 2020.
Date of cash flow Amount Projected
December 31, 2021 1,500,000
December 31, 2022 2,000,000
December 31, 2023 2,500,000
Using the original effective rate of 12%, the present value of 1 is
0.8929 for one period
0.7972 for two periods
0.7118 for three periods
How much is the interest income on December 31, 2021?
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