Intermediate Accounting
9th Edition
ISBN: 9781259722660
Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher: McGraw-Hill Education
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Problem 23National Bank loaned 5,000,000 to Bank net company on Jan. 1, 2018. The terms of the loan require principal payment of 1,000,000 each year for 5 years plus interest at 10%. The first principal and interest payment is due on Dec. 31, 2018. National Bank made the required payments on Dec. 31, 2018 and Dec. 31, 2019. However during 2020, Bank net began to experience financial difficulties and was unable to make the required principal and interest payment on Dec. 31, 2020. National bank projected the cash flows from the loan as of Dec. 31, 2020 as follows: Dec. 31, 2021, 500,000, Dec. 31, 2022, 1,000,000 and Dec. 31, 2023 1,500,000. At 10% PV factors are .9091 for one period, .8264 for two periods, and .7513 for three periods. What is the entry to recognize the impairment loss?
PROBLEM 1
On December 31, 2023, JFG Company, a financing institution, lent
P4,000,000 to MFG Company due 3 years after. The loan is
supported by an 8% note receivable. Transaction costs incurred to
originate the loan amounted to P248,000. P374,000 was
chargeable to MFG as origination fees. Interest on the loan is
collectible at the end of each year. The yield rate on the loan after
considering the direct origination fees and origination costs incurred
is 9.25%.
JFG was able to collect interest as it became due at the end of
2024. During 2025, however, due to MFG Company's business
deterioration and due to political instability and faltering global
economy, the company was not able to collect amounts due at the
end of 2025. After reviewing all available evidence at December 31,
2025, JFG determined that it was probable that MFG would pay
back only P3,400,000 collectible as follows:
December 31, 2027
December 31, 2028
December 31, 2029
December 31, 2030
P1,400,000
1,000,000
600,000…
Problem 10
On December 31, 2020, Olaer Company received two P5,000,000 notes receivable from customers in exchanged for consulting services rendered. On both notes, interest is calculated on the outstanding principal balance at the annual rate of 4% and payable at maturity. The note from Nazareno Corporation, made under customary trade terms, is due on October 1, 2021 and the note from Mudag Corporation is due on December 31, 2025. The market interest rate for similar notes on December 31, 2020 was 10%. The compound interest factors to convert future value into present value at 10% follow: present value of 1 due in nine months, 0.93, and present value of 1 due in five years, 0.62.
1. At what amounts should these two notes receivable be reported in Nazareno’s December 31, 2020 statement of financial position?
2. At what amounts should these two notes receivable be reported in Mudag’s December 31, 2020 statement of financial position?
Chapter 13 Solutions
Intermediate Accounting
Ch. 13 - What are the essential characteristics of...Ch. 13 - Prob. 13.2QCh. 13 - Bronson Distributors owes a supplier 100,000 on...Ch. 13 - Bank loans often are arranged under existing lines...Ch. 13 - Prob. 13.5QCh. 13 - Prob. 13.6QCh. 13 - Salaries of 5,000 have been earned by employees by...Ch. 13 - Prob. 13.8QCh. 13 - Prob. 13.9QCh. 13 - Prob. 13.10Q
Ch. 13 - Prob. 13.11QCh. 13 - Prob. 13.12QCh. 13 - Long-term obligations usually are reclassified and...Ch. 13 - How do IFRS and U.S. GAAP differ with respect to...Ch. 13 - Prob. 13.15QCh. 13 - Prob. 13.16QCh. 13 - Prob. 13.17QCh. 13 - Prob. 13.18QCh. 13 - Suppose the analysis of a loss contingency...Ch. 13 - Prob. 13.20QCh. 13 - Distinguish between the accounting treatment of a...Ch. 13 - At December 31, the end of the reporting period,...Ch. 13 - After the end of the reporting period, a...Ch. 13 - Prob. 13.24QCh. 13 - Prob. 13.25QCh. 13 - Prob. 13.26QCh. 13 - Prob. 13.27QCh. 13 - Prob. 13.28QCh. 13 - Bank loan; accrued interest LO132 On October 1,...Ch. 13 - Non-interest-bearing note; accrued interest LO132...Ch. 13 - Determining accrued interest LO132 On July1,...Ch. 13 - Commercial paper LO132 Branch Corporation issued...Ch. 13 - Non-interest-bearing note; effective interest rate...Ch. 13 - Prob. 13.6BECh. 13 - Advance collection LO133 In Lizzie Shoes...Ch. 13 - Sales tax LO133 DuringDecember, Rainey Equipment...Ch. 13 - Classifying debt LO134 Consider the following...Ch. 13 - Prob. 13.10BECh. 13 - Prob. 13.11BECh. 13 - Prob. 13.12BECh. 13 - Prob. 13.13BECh. 13 - Contingency LO135, LO136 Skill Hardware is the...Ch. 13 - Contingency LO135, LO136 Bell International can...Ch. 13 - Prob. 13.16BECh. 13 - Prob. 13.17BECh. 13 - Unasserted assessment LO135, LO136 At March 13,...Ch. 13 - Bank loan; accrued interest LO132 On November 1,...Ch. 13 - Determining accrued interest in various situations...Ch. 13 - Short-term notes LO132 The following selected...Ch. 13 - Paid future absences LO133 JWS Transport Companys...Ch. 13 - Paid future absences LO133 On January 1, 2018,...Ch. 13 - Prob. 13.6ECh. 13 - Customer deposits LO133 Diversified...Ch. 13 - Prob. 13.8ECh. 13 - Prob. 13.9ECh. 13 - FASB codification research LO133, LO134, LO135...Ch. 13 - Current noncurrent classification of debt; Sprint...Ch. 13 - Prob. 13.12ECh. 13 - Current noncurrent classification of debt LO131,...Ch. 13 - Prob. 13.14ECh. 13 - Warranties LO135, LO136 Cupola Awning Corporation...Ch. 13 - Extended warranties LO135, LO136 Carnes...Ch. 13 - Prob. 13.17ECh. 13 - Impairment of accounts receivable LO135, LO136...Ch. 13 - Prob. 13.19ECh. 13 - Various transactions involving contingencies ...Ch. 13 - Prob. 13.21ECh. 13 - Prob. 13.22ECh. 13 - Disclosures of liabilities Indicate (by letter)...Ch. 13 - Warranty expense; change in estimate LO135, LO136...Ch. 13 - Change in accounting estimate LO133 The...Ch. 13 - Contingency; Dow Chemical Company disclosure ...Ch. 13 - Payroll-related liabilities Appendix Lee...Ch. 13 - Prob. 13.1PCh. 13 - Prob. 13.2PCh. 13 - Current noncurrent classification of debt LO131,...Ch. 13 - Various liabilities LO131 through LO134 The...Ch. 13 - Bonus compensation; algebra LO133 Sometimes...Ch. 13 - Various contingencies LO135, LO136 Eastern...Ch. 13 - Prob. 13.7PCh. 13 - Expected cash flow approach; product recall LO136...Ch. 13 - Subsequent events LO136 Lincoln Chemicals became...Ch. 13 - Subsequent events; classification of debt; loss...Ch. 13 - Prob. 13.11PCh. 13 - Various liabilities; balance sheet classification;...Ch. 13 - Payroll-related liabilities Appendix Alamar...Ch. 13 - Prob. 13.1BYPCh. 13 - Prob. 13.3BYPCh. 13 - Prob. 13.4BYPCh. 13 - Prob. 13.5BYPCh. 13 - Prob. 13.7BYPCh. 13 - Prob. 13.8BYPCh. 13 - Judgment Case 139 Loss contingency and full...Ch. 13 - Prob. 13.10BYPCh. 13 - Prob. 13.12BYPCh. 13 - Prob. 13.13BYPCh. 13 - Prob. 13.14BYPCh. 13 - Prob. 13.15BYPCh. 13 - Prob. 13.16BYPCh. 13 - Prob. 13.18BYPCh. 13 - Real World Case 1319 Contingencies LO135 Real...Ch. 13 - Real World Case 1320 Contingencies and Subsequent...Ch. 13 - Prob. 1CCTCCh. 13 - Prob. 1CCIFRS
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- Problem 24Safari Bank granted a loan to a borrower on Jan. 1, 2020. The interest on the loan is 8% payable annually starting Dec. 31,2020. The loan matures in three years on Dec. 31,2022. Data related to the loan are:Principal amount 1,500,000Origination fees charged against the borrower 50,000Direct Origination cost incurred 130,150After consideration of the origination fees charged against the borrower and the direct origination cost incurred, the effective rate on the loan is 6%. Required:1. Prepare a table of amortization for the loan receivable.2. Prepare the journal entries for 2020, 2021 and 2022.arrow_forwardResearch Case 13-1 (Static) Bank loan; accrued interest [LO13-1, 13-2] A fellow accountant has solicited your opinion regarding the classification of short-term obligations repaid prior to being replaced by a long-term security. Cheshire Foods, Inc., issued $5,000,000 of short-term commercial paper during 2020 to finance construction of a plant. At September 30, 2021, Cheshire's fiscal year-end, the company intends to refinance the commercial paper by issuing long-term bonds. However, because Cheshire temporarily has excess cash, in November 2021 it liquidates $2,000,000 of the commercial paper as the paper matures. In December 2021, the company completes a $10,000,000 long-term bond issue. Later during December, it issues its September 30, 2021, financial statements. The proceeds of the long-term bond issue are to be used to replenish $2,000,000 In working capital, to pay $3,000,000 of commercial paper as it matures in January 2022, and to pay $5,000,000 of construction costs expected…arrow_forwardItem 9 of 50 A company has obtained a short-term bank loan of P500,000 at an annual interest rate of 6 with a compensating balance of P100,000 in its checking account. The checking account earns interest at an annual rate of 2%. Ordinarily, the company maintains a balance of P50,000 in its account for transaction purposes. What is the effective interest rate of the loan? Select the correct response: O 6.44% O 8.22% O 8.56% 7.77%arrow_forward
- 12. 12 Multiple Choices. A company pledged its entire accounts receivable amounting to P2,500,000 to a financing institution to a loan approved for P2,000,000. The term of the loan requires the company to pay the principal when it becomes mature 4 years from now and also to pay 12% annual interest every end of the year. Should the company has made no collateral for the loan, interest rate could have been 18%. Assuming the transaction occurred on June 30, 20A, what shall be the proper accounting treatment for the pledged accounts? a.disclose the loan to notes to financial statements and derecognize the pledged accounts b.derecognize the pledged accounts c.disclose it to the notes to financial statements d.recognized the loan and derecognize the pledged accounts e.do nothingarrow_forwardProblem 27 On January 1, 2022, De Vera Company loaned Dagpin Company amounting to P2,000,000 and received a two-year, 6%, P2,000,000 note. The note calls for annual interest to be paid each December 31. De Vera collected the 2022 interest on schedule. However, on December 31, 2023, based on the Dagpin’s recent financial difficulties, De Vera expects that the 2023 interest, which was recorded in the books, will not be collected and that only P1,200,000 of the principal will be recovered. The P1,200,000 principal amount is expected to be collected in two equal installments on December 31, 2025 and December 31, 2027. The prevailing interest rate for similar type of note as of December 31, 2023 is 8%. What is the loan impairment loss to be recognized for the year 2023 How much is the interest income for the year 2025? The carrying amount of the loan as of December 31, 2026 is:arrow_forwardProblem 7-14 (IAA) On December 31, 2021, Oregon Bank recorded an investment of P5,000,000 in a loan granted to a client. The loan has a 10% effective interest rate payable annually every December 31. The principal is due in full at maturity on December 31, 2024. Unfortunately, the borrower is experiencing significant financial difficulty and will have difficult time in making full payment. The bank projected that the entire principal will be paid at maturity and 4% interest or P200,000 will be paid annually on December 31 of the next three years. There is no accrued interest on December 31, 2021. The present value of 1 at 10% for three periods is 0.75, and the present value of an ordinary annuity of 1 at 10% for three periods is 2.49. 1. What amount should be reported as impairment loss for 2021? a. 752,000 b. 600,000 c. 250,000 d. 748,000 2. What amount should be reported as interest income for 2022? a. 200,000 b. 424,800 c. 224,800 d. 500,000 3. What is the carrying amount of the…arrow_forward
- PROBLEM 8 On January 1, 2022, Clark Co. received a P3,000,000, 10% note from a customer upon the sale of its goods. The note is to be paid in six equal semi-annual installments, plus interest on the outstanding balance every June 30 and December 31, starting June 30, 2021. The effective rate on the note is 9%. 1. How much is the note upon initial recognition? 2. How much is the interest income recognized by Clark in 2022? 3. How much is the carrying amount of the note on December 31, 2023?arrow_forwardP15–14 Integrative: Comparison of loan terms Cumberland Furniture wishes to establish a prearranged borrowing agreement with a local commercial bank. The bank’s terms for a line of credit are 3.30% over the prime rate, and each year the borrowing must be reduced to zero for a 30-day period. For an equivalent revolving credit agreement, the rate is 2.80% over prime with a commitment fee of 0.50% on the average unused balance. With both loans, the required compensating balance is equal to 20% of the amount borrowed. (Note: Cumberland currently maintains $0 on deposit at the bank.) The prime rate is currently 8%. Both agreements have $4 million borrowing limits. The firm expects on average to borrow $2 million during the year no matter which loan agreement it decides to use. What is the effective annual rate under the line of credit? What is the effective annual rate under the revolving credit agreement? (Hint:Compute the ratio of the dollars that the firm will pay in interest and…arrow_forwardExerciseInstallment Notes ABC bank loans $250,000 to Yossarian to purchase a new home. Yossarian will repay the note in equal monthly payments over a period of 30 years. The interest rate is 12%. Required: If the monthly payment is $2,571.53, how much of the first payment is interest expense and how much is principal repayment? (Note: Round to the nearest cent.)arrow_forward
- Gifts Galore Inc. borrowed 1.5 million from National City Bank. The loan was made at a simple annual interest rate of 9% a year for 3 months. A 20% compensating balance requirement raised the effective interest rate. a. The nominal annual rate on the loan was 11.25%. What is the true effective rate? b. What would be the effective cost of the loan if the note required discount interest? c. What would be the nominal annual interest rate on the loan if the bank did not require a compensating balance but required repayment in three equal monthly installments?arrow_forwardProblem 24 Safari Bank granted a loan to a borrower on Jan. 1, 2020. The interest on the loan is 8% payable annually starting Dec. 31,2020. The loan matures in three years on Dec. 31,2022. Data related to the loan are: Principal amount Origination fees charged against the borrower Direct Origination cost incurred 1,500,000 50,000 130,150 After consideration of the origination fees charged against the borrower and the direct origination cost incurred, the effective rate on the loan is 6%. Required: 1. Compute the carrying amount of the loan receivable on December 31,2020, December 31,2021, December 31,2022. 2. Prepare a table of amortization for the loan receivable. 3. Prepare the journal entries for 2020, 2021 and 2022.arrow_forwardPlease answerarrow_forward
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