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What is the appropriate accounting treatment

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Problem - Debt Issuance Costs: A 3% loan was granted to Simeoni Ltd. in 20X2. The principal amount was $8,000,000 and the term was three years. Interest Page 947 is paid at the end of each year. In addition, the lender charged an upfront fee of $435,700 for evaluating the loan application. Simeoni plans to expense this as a financing fee in 20X2. Management was delighted to get a 3% loan because other financial institutions had bid a much higher interest rate for the same terms and security.

Required -

1. Did Simeoni get a 3% loan? Explain, and calculate the effective interest rate associated with the loan.

2. What is the appropriate accounting treatment of the upfront fee? When is it expensed?

3. Give the required entries for Simeoni over the life of the loan.

Reference no: EM132903634

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