Problem 7-6

Requirement 1

12/31/21 ( 500,000 x .89) 445,000

12/31/22 (1,000,000 x .80) 800,000
12/31/23 (2,000,000 x .71) 1,420,000
12/31/24 (4,000,000 x .64) 2,560,000
Present value of loan – 12/31/20 5,225,000

Requirement 2

Loan receivable 7,500,000

Accrued interest receivable (7,500,000 x 12%) 900,000
Carrying amount 8,400,000
Present value of loan 5,225,000
Impairment loss 3,175,000

Requirement 3

2020 Impairment loss 3,175,000

Accrued interest receivable 900,000
Allowance for loan impairment 2,275,000

2021 Cash 500,000

Loan receivable 500,000
Allowance for loan impairment 627,000
Interest income (5,225,000 x 12%) 627,000

2022 Cash 1,000,000

Loan receivable 1,000,000
Allowance for loan impairment 642,240
Interest income 642,000

Computation for interest income for 2022

Loan receivable 7,000,000
Allowance for loan impairment (2,275,000 – 627,000) (1,648,000)
Carrying amount 5,352,000

Interest income (5,352,000 x 12%) 642,240

 Problem 7-7
Requirement 1

12/31/23 (360,000 x .772) 277,920

12/31/24 (360,000 x .708) 254,880
12/31/25 (360,000 x .650) 234,000
12/31/26 (4,360,000 x .596) 2,598,560
Present value of loan – 12/31/20 3,365,360

Requirement 2

Face value 4,000,000

Present value of loan 3,365,360
Impairment loss 634,640

Requirement 3

2020 Cash 360,000

Interest income 360,000
Impairment loss 634,640
Allowance for loan impairment 634,640

2021 Allowance for loan impairment 302,882

Interest income (3,365,360 x 9%) 302,882

2022 Allowance for loan impairment 331,758

Interest income (634,640 - 302,882) 331,758

2023 Cash 360,000

Interest income 360,000

2024 Cash 360,000

Interest income 360,000

2025 Cash 360,000

Interest income 360,000

2026 Cash 4,360,000

Loan receivable 4,000,000
Interest income 360,000