True or false:

__________1.The amortization when Direct Origination Cost is lower than the Origination Fee

will result to a credit of Unearned Interest Income in the entry amortization.

__________2.The amortization when Direct Origination Cost is lower than the Origination

Fee, interest income over the years is decreasing.

__________3. If the origination fees are not chargeable against the borrower, the fees are

known as indirect origination costs.

__________4. The indirect origination costs are deferred and also amortized over the term of

the loan.

__________5. Allowance for loan impairment is deducted to loan receivable to arrive at the

carrying amount of the loan receivable.

__________6. Loan impairment loss is measured as the difference between the carrying

amount of the loan and the present value of estimated future cash flows discounted at the

original effective rate of the loan.

__________7. The amortization, subsequent to measurement of impairment, is credited to

Allowance for loan impairment.

__________8. In the effective interest method table, interest income is added while

collection of loan is deducted against the carrying amount of the loan.

MCQ

9.At initial recognition, an entity shall measure a loan receivable at

a. Cost

b. Amortized cost

c. Fair value

d. Fair value plus transaction costs that are directly attributable to the acquisition of the asset

10.Which of the following is not objective evidence of impairment of a financial asset?

a. Significant financial difficulty of the issuer or obligor.

b. A decline in the fair value of the asset below its previous carrying amount.

c. A breach of contract, such as default or delinquency in interest or principal payment.

d. The lender, for economic or legal reason relating to the borrower's financial difficulty,

grants to the borrower a concession that the lender would not otherwise consider.

Problem 22

ABC Bank granted a loan to a borrower on Jan. 1, 2019. The interest on the loan is 10%

payable annually starting Dec. 31,2019. The loan matures in five years on Dec. 31,2023. The

data related to the loan are:

Principal amount 8,000,000

Origination fees received 700,000

Direct Origination cost incurred 123,000

The effective rate on the loan after considering the direct origination cost and the origination

fee received is 12%.

1.What is the entry to record the receipt of the interest income on December 31, 2019?

a. Cash 800,000

Interest Income 800,000

b. Cash 800,000

Unearned Interest Income 800,000

c. Cash 890,760

Interest Income 890,760

d. Cash 890,760

Unearned Interest Income 890,760

2.What is the interest income for 2019?

a. 800,000 b. 1,116,000 c.1,058,760 d. 890,760

Problem 23

National 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?

a.Impairment Loss 892,100

Allowance for loan impairment 592,100

Interest Receivable 300,000

b.Impairment loss 892,100

Allowance for loan Impairment 892,100

c.Impairment Loss 592,100

Allowance for loan impairment 592,100

d.Impairment Loss 1,192,100

Allowance for loan impairment 592,100

Interest Receivable 600,000

Problem 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 1,500,000

Origination fees charged against the borrower 50,000

Direct Origination cost incurred 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 What is the table of amortization for the loan receivable.

3. What are the journal entries for 2020, 2021 and 2022.

Problem 25

Davao Bank loaned P7,500,000 to a borrower on January 1, 2018. The terms of the loan were

payment in full on January 1, 2023, plus annual interest payment at 12%. The interest payment

was made as scheduled on January 1, 2019. However, due to financial setbacks, the borrower

was unable to make its 2020 interest payment and Davao Bank considers the loan impaired and

projects the cash flows from the loan as of December 31, 2020. The bank has accrued the

interest at December 31, 2019, but did not continue to accrue interest for 2020 due to the

impairment of the loan. The projected cash flows are:

Date of cash flow Amount projected

as of Dec. 31, 2020

December31, 2021 500,000

December31, 2022 1,000,000

December31, 2023 2,000,000

December31, 2024 4,000,000

The present value at l2% is as follows:

For one period 0.89

For two periods 0.80

For three periods 0.71

For four periods 0.64

Required:

1.Compute the impairment loss of the loan receivable on December 31,2020.

2.What is the table of amortization for the loan receivable.

3. What are the journal entries for 2018 - 2024.