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Prepare the valuation adjusting entry at December

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Reference no: EM132823257

Question - Lennon Associates loaned Mc Cartney Company 750,000 on January 1, 2017. The terms of the loan were payment in full on January 1, 2022 plus annual interest payments at 11%. The interest payment was made as scheduled on January 1, 2018, however, due to financial setbacks, Mc Cartney was unable to make its 2019 interest payment. Lennon considers the loan impaired and projects the following cash flows from the loan as of December 31, 2019 and 2020. Assume that Lennon accrued the interest at December 31, 2018 but did not continue to accrue interest due to the impairment of the loan. The prevailing interest rate for similar type of note as of December 31, 2019 and 2020 is 10%.

Projected Cash Flows

Amount projected as of Date of Flow December 31, 2019 December 31, 2020

December 31, 2020 50,000 50,000

December 31, 2021 100,000 150,000

December 31, 2022 200,000 300,000

December 31, 2023 300,000 250,000

December 31, 2024 100,000

Required -

I. Prepare the valuation adjusting entry at December 31, 2019.

II. Prepare the journal entry to record the 50,000 receipt on December 31, 2020.

III. Prepare the valuation adjusting entry at December 31, 2020.

IV. Prepare the 2021 journal entries, assuming the receipts of 150,000 as scheduled; also assume that estimates for future cash flows remain the same as they were at the end of 2020.

Reference no: EM132823257

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