Intermediate Accounting
3rd Edition
ISBN: 9780136912644
Author: Elizabeth A. Gordon; Jana S. Raedy; Alexander J. Sannella
Publisher: Pearson Education (US)
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Textbook Question
Chapter 9, Problem 2SSC
Surfing the Standards Case 2: Costs Associated with Receivables
ABC Lending signed a loan agreement with AMRO, Inc. on January 2. 2017. AMRO is borrowing $500,000 for 10 years with a stated interest rate of 7%. AMRO will make a payment of $71,188. 75 at the end of each year AMRO paid $10,000 in points to ABC Lending on January 2, 2017.
In connection with this transaction ABC Lending paid fees to a third party for loan processing. These fees were 0.5% of the loan balance ABC Lending also paid a bonus to an employee of 1% of the loan balance. Finally, ABC paid advertising costs of $1,500 and incurred expenses of $2,000 related to the preparation of the loan documents.
Prepare a memo to the file regarding the correct accounting treatment for this transaction for ABC Lending. Use the Codification for support.
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Question
Happy Bank loaned P5,500,000 to Sadako Company on January 1, 2016. The
initial loan repayment terms include a 10% interest rate plus annual principal
payments of P1,100,000 on December 31 each year. Sadako made the required
interest payment in 2016 but did not make the P1,100,000 principal payment
nor the P550,000 interest payment for 2017. Happy is preparing its annual
financial statements for December 31, 2017. Sadako is having financial
difficulty, and Happy has concluded that the loan is impaired. Analysis of
Sadako's financial condition on December 31, 2017, indicates the principal
payments will be collected, but the collection of interest is unlikely. Happy did
not accrue interest on December 31, 2017. The projected cash flows are:
December 31, 2018
December 31, 2019
December 31, 2020
1,750,000
2,000,000
1,750,000
1. What is the loan impairment loss on December 31, 2017?
2. What is the carrying value of the loan receivable on December 31, 2019?
Philippine Bank granted a loan to a borrower on January 1, 2017. The interest on the loan is
8% payable anually starting December 31, 2017. The loan matures in three years on December 31, 2019.
Principal amount
3,000,000
Origination fee charged against the borrower
100,000
Direct origination cost incurred
260,300
After considering the origination fee charged to the borrower and the direct
origination cost incurred, the effective rate on the loan is 6%.
3. What is the carrying amount of the loan receivable on December 31, 2017?
a. 3,000,000
b. 3,160,300
c. 3,109,918
d. 3,210,682
4. What is the interest income for 2018?
a. 240,000
b. 180,000
c. 248,793
d. 186,595
Vaughn Manufacturing lends Pina Colada industries $51600 on August 1, 2022, accepting a 9-month, 12% interest note. If Vaughn Manufacturing accrued interest at its December 31, 2022 year-end, what entry must it make to record the collection of the note and interest at its maturity date?
Cash
56244
Notes Receivable
51600
Interest Revenue
4644
Cash
56244
Notes Receivable
51600
Interest Receivable
2580
Interest Revenue
2064
Cash
56244
Notes Receivable
56244
Notes Receivable
51600
Interest Receivable
2580
Interest Revenue
2064
Cash
56244
Chapter 9 Solutions
Intermediate Accounting
Ch. 9 - Prob. 9.1QCh. 9 - Do companies always classify cash as a current...Ch. 9 - Prob. 9.3QCh. 9 - Do accountants typically measure accounts...Ch. 9 - Under the allowance method, will the actual...Ch. 9 - How does an entity record a subsequent recovery of...Ch. 9 - Does the aging of accounts receivable method of...Ch. 9 - What is the difference between pledging accounts...Ch. 9 - How do companies account for receivables that are...Ch. 9 - Is the face value of a note receivable exchanged...
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