Chapter 1 Problem 5-26
Requirement 1
December 31, 2009 (1,000,000 x .93) 900,000
December 31, 2010 (2,000,000 x .86) 1,720,000
December 31, 2011 (3,000,000 x .79) 2,370,000
Total present value of loan 5,020,000
Requirement 2
Loan receivable – 12/31/2008 6,000,000
Accrued interest (6,000,000 x 8%) 480,000
Total carrying value 6,480,000
Present value of loan 5,020,000
Impairment loss 1,460,000
Requirement 3
2008 Impairment loss 1,460,000
Accrued interest receivable 480,000
Allowance for loan impairment 980,000
2009 Cash 1,000,000
Loan receivable 1,000,000
Allowance for loan impairment 401,600
Interest income (8% x 5,020,000) 401,600
2010 Cash 2,000,000
Loan receivable 2,000,000
Allowance for loan impairment 353,728
Interest income 353,728
Loan receivable – 12/31/2009 5,000,000
Allowance for loan impairment (980,000 – 401,600) ( 578,400)
Carrying value – 12/31/2009 4,421,600
Interest income for 2010 (8% x 4,421,600) 353,728
67
2011 Cash 3,000,000
Loan receivable 3,000,000
Allowance for loan impairment 224,672
Interest income 224,672
Loan receivable – 12/31/2010 3,000,000
Allowance for loan impairment (578,400 – 353,672) ( 224,672)
Carrying value – 12/31/2010 2,775,328
Interest income for 2011 (8% x 2,775,328) 222,026
Allowance per book 224,672
Difference due to rounding 2,646
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