Question
Problem C on January 1, 2021, Josiah Bank loaned P 6,000,000, 9% interest rate to a borrower, the term of the loan is six years,
Problem C on January 1, 2021, Josiah Bank loaned P 6,000,000, 9% interest rate to a borrower, the term of the loan is six years, interest is payable annually every December 31 and the principal amount will be collected on December 31, 2026 interest is collected for 2021, On December 31, 2021 the bank determined that the loan has a 12-month probability of default of 4% and expected to collect only 95% of the loan. On December 31, 2022, the bank determined that there is significant increase in the credit risk of the loan but no objective evidence of impairment. Based on relevant information, that bank concluded that there is a 35% probability of default over the remaining term of the loan and it is expected that only 70% of the loan will be collected. Interest is collected for 2022. On December 31, 2023, the borrower was under financial difficulty and the loan was considered impaired. The bank agreed that only 40% of the principal will be collected on due date. Interest is collected for 2023. The present value of 1 at 9% is 0.6599631 for 5 period, 0.708425 for 4 period and 0.772183 for 3 periods. Required: 1. prepare the journal entries for 2021, 2022 and 2023? 2. Compute the carrying amount of the loan receivable on December 31, 2021, 2022 and 2023.
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