Question
On December 31,2017, Security Bank has a loan receivable of 4,000,000 from a borrower that is carrying at face amount and is due on December
On December 31,2017, Security Bank has a loan receivable of 4,000,000 from a borrower that is carrying at face amount and is due on December 31, 2022. Interest on the loan is payable at 9% each December 31.
The borrower paid the interest due on December 31, 2017 but informed the bank that it would probably miss the next 2 years' interest payments because of financial difficulty.
After that, the borrower is expected to resume the annual interest payment but it would make the principal payment one year late, with interest paid for that additional year at the time of principal payment.
Present value of 1 at 9%
One period | .917 |
Two periods | .842 |
Three periods | .772 |
Four periods | .708 |
Five periods | .650 |
Six periods | .596 |
REQUIRED: Please show solutions. Thanks
1. Compute the present value of the loan receivable on December 31, 2017.
2. Compute the impairment loss to be recognized on December 31, 2017
3. Prepare Journal entries from 2017 to 2023
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