Problem 21 –2

National bank granted a loan to a borrower on January 1, 2021. The interest on the loan is 10%
payable annually starting December 31, 2021. The loan matures in three years on December 31, 2023.

Principal amount 4,000,000

Origination fee charged against the borrower 342,000
Direct origination cost incurred 150,000

After considering the origination fee charged against the borrower and the direct origination cost
incurred, the effective rate on the loan is 12%.

1. What is the carrying amount of the loan receivable on January 1, 2021?

a. 4,000,000
b. 3,807,900
c. 4,150,000
d. 3,657,900

2. What amount should be recognized as interest income for 2021?

a. 400,000
b. 380,900
c. 456,948
d. 480,000

3. What is the carrying amount of the loan receivable on December 31, 2021?
a. 4,000,000
b. 3,807,900
c. 3,864,000
d. 3,750,932

4. What amount should be recognized as interest income for 2022?