Kalibo Bank loaned P5,000,000 to Caticlan Company on January 1, 2014. The terms of the loan requireprincipal payments of P1,000,000 each year for 5 years plus interest at 8%.

The first principal and interest payment is due on January 1, 2015 Caticlan Company made therequired payments during 2015 and 2016. However, during 2016 Caticlan Company began toexperience financial difficulties, requiring Kalibo Bank to reassess the collectibility of the loan.

On December 31, 2016, Kalibo Bank has determined that the remaining principal payment will becollected but the collection of the interest is unlikely. Kalibo Bank did not accrue the interest on December 31, 2016.

The present value of 1 at 8% is as follows:

For one period 0.926

For two periods 0.857

For three periods 0.794