QUESTION 1 Sundown Bank has a loan portfolio with three different risk pools a high risk pool with estimated credit losses of 5 , a medium risk pool with estimated credit losses of 2 and a low risk pool with estimated credit losses of 1 On June 1, 20X1, Eric Grunge, who is in the medium risk pool, is 30 days late on a commercial loan for 300,000 Sundown transfers the loan to the high risk pool As a result a Sundown should recognize a loss of 300,000 less any collections from sale or operation of the property b Should recognize an additional loss of 15,000 c Should recognize an additional loss of 9,000 d Sundown should recognize a loss of 300,000 QUESTION 2 The unit of account for measuring loan losses is a Individual loans with unique risk characteristics b Groups of loans with similar risk characteristics c Each individual loan d All loans of an individual borrower QUESTION 3 Company B has guaranteed the balance of the loan of Company A The guarantee is included in measuring the allowance for credit losses when a Company B is not a related party b Company B is willing and able to perform c The guarantee is embedded in the loan contract d The guarantee is in a separate contract QUESTION 4 Carp Corp invests in a group of loans with similar risk characteristics owed by struggling retailers The bonds have a par amount of 10,000,000 and a fair value of 7,000,000 when purchased for cash Carp elects to record the assets at amortized cost On acquisition, Carp should a Account for the assets at the fair value of $7,000,000 b Account for the assets at the cost of $7,000,000 and recognize an allowance for any additional credit losses c Account for the assets at the par value of $10,000,000 and recognize an allowance for credit losses for $3,000,000 d Account for the assets at the par value of $10,000,000 and recognize an allowance for credit losses after allocating any noncredit discount or premium to individual loans QUESTION 5 The allowance for credit losses a Can increase or decrease on reassessment b Can be either a debit or credit balance c Is measured at fair value d Is based on forecasted information QUESTION 6 Purchases of credit impaired assets are recognized at a At par on acquisition with an allowance for credit losses b At par value on acquisition c At par noncredit discount and an allowance for credit losses d Fair value on acquisition QUESTION 7 Credit losses are included in an allowance account a When there is an indicator of impairment b On initial recognition and subsequent periods c When losses become probable and estimable d When the fair value of a loan at amortized cost falls below book value QUESTION 8 Twilight Financing issues residential loans in 2020 for $50,000,000 On issuance, all of the loans are to credit worthy borrowers Based on previous experience, Twilight expects approximately 0 5 (250,000) of the loans to be uncollectible after consideration of collateral Based on current conditions and a reasonable and supportable forecast, Twilight estimates an additional 0 25 of credit losses is probable When the loans are issued, Twilight should a Recognize a credit loss on the loans of $375,000 b Recognize an allowance based on historical experience, current conditions and reasonably supportable forecasts c Recognize an impairment loss for $250,000 d Measure each loan individually QUESTION 9 Credit losses for loan commitments are recognized a When the commitment is issued b When the loan is issued c Unless the commitment is unconditionally cancellable d When a loss becomes probable and estimable QUESTION 10 Eric Grunge defaults on a commercial loan for $300,000 Sundown Bank could either sell the property for its fair value of $200,000 with an estimated $20,000 of selling costs or operate the property and realize proceeds with a present value of $190,000 The loan was part of a high risk pool with estimated credit losses of 5 Upon default, Sundown should recognize a A loss of 120,000 if they intend to sell the collateral b A loss based on either sale or operation, whichever is less c An allowance of 95,000 if they intend to operate the business d A loss of 100,000 if they intend to sell the collateral QUESTION 11 Daylight Mortgage has a portfolio of loans with estimated credit losses of $1,000,000 at January 1, 20X1 Due to an improvement in the economic outlook and based on revised forecasts, it estimate of credit losses at 12 31 X1 is $800,000 As a consequence, Daylight should a Retain the previous estimate until the reduction in estimated loses is realized b Disclose a contingent gain of 200,000 c Recognize a reversal of the credit loss d Remeasure the loans at fair value QUESTION 12 Carp Corp invests in a group of loans with similar risk characteristics owed by struggling retailers The bonds have a par amount of 10,000,000 and a fair value of 7,000,000 when purchased for cash Carp elects to record the assets at amortized cost In subsequent periods a Carp would recognize interest income based on the effective yield of each individual asset and adjust the allowance for credit losses for the pool b Carp would adjust the allowance for credit losses and recognize a gain or loss in income c Carp would recognize amortize the purchase discount and recognize interest revenue based on the effective yield of the pool d Carp would adjust the allowance for credit losses and recognize credit expense for any changes QUESTION 13 Under CECL, the amount of impairment losses recognized a May be based on a pool of assets with similar risk characteristics b May iinclude entity specific factors c Are based on the fair value of the loans d Is based on the facts and circumstances of each loan QUESTION 14 At initial recognition, if all other terms and conditions are equal and the assets are not credit impaired a Both US GAAP and IFRS will have the same book value b US GAAP assets would have a higher book value c IFRS assets would have a higher book value d Either measure could be higher or lower QUESTION 15 Under IFRS, for assets that are not credit impaired when credit risk has not increased significantly since issuance a No allowance for credit losses is needed b Recognize credit losses based expected credit losses for the term of the instrument c Recognize credit losses expected within 12 months d Recognize credit losses based on reasonable and supportable forecasts

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QUESTION 1 Sundown Bank has a loan portfolio with three different risk pools: a high risk pool with estimated credit losses of 5%, a medium

QUESTION 1

Sundown Bank has a loan portfolio with three different risk pools: a high risk pool with estimated credit losses of 5%, a medium risk pool with estimated credit losses of 2% and a low risk pool with estimated credit losses of 1%. On June 1, 20X1, Eric Grunge, who is in the medium risk pool, is 30 days late on a commercial loan for 300,000. Sundown transfers the loan to the high risk pool. As a result:

	a.	Sundown should recognize a loss of 300,000 less any collections from sale or operation of the property
	b.	Should recognize an additional loss of 15,000
	c.	Should recognize an additional loss of 9,000
	d.	Sundown should recognize a loss of 300,000

QUESTION 2

The unit of account for measuring loan losses is

	a.	Individual loans with unique risk characteristics
	b.	Groups of loans with similar risk characteristics
	c.	Each individual loan
	d.	All loans of an individual borrower

QUESTION 3

Company B has guaranteed the balance of the loan of Company A. The guarantee is included in measuring the allowance for credit losses when

	a.	Company B is not a related party
	b.	Company B is willing and able to perform
	c.	The guarantee is embedded in the loan contract
	d.	The guarantee is in a separate contract

QUESTION 4

Carp Corp invests in a group of loans with similar risk characteristics owed by struggling retailers. The bonds have a par amount of 10,000,000 and a fair value of 7,000,000 when purchased for cash. Carp elects to record the assets at amortized cost. On acquisition, Carp should

	a.	Account for the assets at the fair value of $7,000,000
	b.	Account for the assets at the cost of $7,000,000 and recognize an allowance for any additional credit losses
	c.	Account for the assets at the par value of $10,000,000 and recognize an allowance for credit losses for $3,000,000
	d.	Account for the assets at the par value of $10,000,000 and recognize an allowance for credit losses after allocating any noncredit discount or premium to individual loans.

QUESTION 5

The allowance for credit losses

	a.	Can increase or decrease on reassessment
	b.	Can be either a debit or credit balance
	c.	Is measured at fair value
	d.	Is based on forecasted information

QUESTION 6

Purchases of credit-impaired assets are recognized at

	a.	At par on acquisition with an allowance for credit losses
	b.	At par value on acquisition
	c.	At par +/- noncredit discount and an allowance for credit losses
	d.	Fair value on acquisition

QUESTION 7

Credit losses are included in an allowance account

	a.	When there is an indicator of impairment
	b.	On initial recognition and subsequent periods
	c.	When losses become probable and estimable
	d.	When the fair value of a loan at amortized cost falls below book value

QUESTION 8

Twilight Financing issues residential loans in 2020 for $50,000,000. On issuance, all of the loans are to credit-worthy borrowers. Based on previous experience, Twilight expects approximately 0.5% (250,000) of the loans to be uncollectible after consideration of collateral. Based on current conditions and a reasonable and supportable forecast, Twilight estimates an additional 0.25% of credit losses is probable. When the loans are issued, Twilight should:

	a.	Recognize a credit loss on the loans of $375,000
	b.	Recognize an allowance based on historical experience, current conditions and reasonably supportable forecasts
	c.	Recognize an impairment loss for $250,000
	d.	Measure each loan individually

QUESTION 9

Credit losses for loan commitments are recognized

	a.	When the commitment is issued
	b.	When the loan is issued
	c.	Unless the commitment is unconditionally cancellable
	d.	When a loss becomes probable and estimable

QUESTION 10

Eric Grunge defaults on a commercial loan for $300,000. Sundown Bank could either sell the property for its fair value of $200,000 with an estimated $20,000 of selling costs or operate the property and realize proceeds with a present value of $190,000. The loan was part of a high-risk pool with estimated credit losses of 5%. Upon default, Sundown should recognize:

	a.	A loss of 120,000 if they intend to sell the collateral
	b.	A loss based on either sale or operation, whichever is less
	c.	An allowance of 95,000 if they intend to operate the business
	d.	A loss of 100,000 if they intend to sell the collateral

QUESTION 11

Daylight Mortgage has a portfolio of loans with estimated credit losses of $1,000,000 at January 1, 20X1. Due to an improvement in the economic outlook and based on revised forecasts, it estimate of credit losses at 12/31/X1 is $800,000. As a consequence, Daylight should

	a.	Retain the previous estimate until the reduction in estimated loses is realized
	b.	Disclose a contingent gain of 200,000
	c.	Recognize a reversal of the credit loss
	d.	Remeasure the loans at fair value

QUESTION 12

Carp Corp invests in a group of loans with similar risk characteristics owed by struggling retailers. The bonds have a par amount of 10,000,000 and a fair value of 7,000,000 when purchased for cash. Carp elects to record the assets at amortized cost. In subsequent periods:

	a.	Carp would recognize interest income based on the effective yield of each individual asset and adjust the allowance for credit losses for the pool
	b.	Carp would adjust the allowance for credit losses and recognize a gain or loss in income
	c.	Carp would recognize amortize the purchase discount and recognize interest revenue based on the effective yield of the pool
	d.	Carp would adjust the allowance for credit losses and recognize credit expense for any changes

QUESTION 13

Under CECL, the amount of impairment losses recognized

	a.	May be based on a pool of assets with similar risk characteristics
	b.	May iinclude entity-specific factors
	c.	Are based on the fair value of the loans
	d.	Is based on the facts and circumstances of each loan

QUESTION 14

At initial recognition, if all other terms and conditions are equal and the assets are not credit impaired

	a.	Both US GAAP and IFRS will have the same book value
	b.	US GAAP assets would have a higher book value
	c.	IFRS assets would have a higher book value
	d.	Either measure could be higher or lower

QUESTION 15

Under IFRS, for assets that are not credit impaired when credit risk has not increased significantly since issuance:

	a.	No allowance for credit losses is needed
	b.	Recognize credit losses based expected credit losses for the term of the instrument
	c.	Recognize credit losses expected within 12 months
	d.	Recognize credit losses based on reasonable and supportable forecasts