Reference no: EM133016873
Question - On January 1, 2019, XYZ Incorporated granted a loan to V Incorporated amounting to 10,000,000. The loan is payable after a period of 5 years with interest of 12% collectible annually starting December 31, 2019. The prevailing rate of the note on this date approximates the nominal rate.
V was able to make all the necessary interest payments for the year 2019 and 2020, however, due to financial difficulties, they were unable to make the necessary interest payments for 2021 and 2022. On December 31, 2022, XYZ reassessed the loan of V and it was determined to be impaired. Interest accruing on the loan for 2021 was recorded but the interest for 2022 was not accrued.
V renegotiated the loan and the following were determined:
Interest accruing on the note would not be collectible
Only 8,000,000 of the principal amount would be collected in full on December 31, 2025.
The prevailing rate of the loan on December 31, 2022 is 13%.
Required -
a. What amount shall be recognized as impairment loss on December 31, 2022?
b. What would be the carrying value of the loan on December 31, 2024?
c. Give all entries to record transactions on December 31, 2025?
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