National Bank grants a 10-year loan to Abbo Company in the amount of P1,500,000 with astated

interest rate of 6%. Payments are due monthly and are computed to be P16,650.National Bank
incurs P40,000 of direct loan origination cost and P20,000 of indirect loanorigination cost. In
addition, National Bank charges Abbo a 4-point nonrefundable loanorigination fee.

National Bank, the lender, has a carrying amount of:

- Note receivable P1,500,000
Direct origination cost 40,000
Total P1,540,000
Nonrefundable origination fee (1,500,000 x 4%) 60,000
Carrying value P1,480,000

Abbo, the borrower, has a carrying amount of:

- Note payable P1,500,000
Nonrefundable origination fee ( 60,000)
Carrying value P1,440,000

Solution:
Initial measurement: 800,000 x PV of 1 @12%, n=3 = 569,424
Subsequent measurement:
Date Interest income Unearned interest Present value
1/1/x1 230,576 569,424
12/31/x1 68,331 162,245 637,755
12/31/x2 76,531 85,714 714,286
12/31/x3 85,714 - 800,000

Solution:
Initial measurement: (8M ÷ 4) x PV ordinary annuity of 1 @12%, n=4 = 6,074,699
Subsequent measurement:
Date Collections Interest income Amortization Present value
1/1/20x1 6,074,699
12/31/20x1 2,000,000 728,964 1,271,036 4,803,663
12/31/20x2 2,000,000 576,440 1,423,560 3,380,102
12/31/20x3 2,000,000 405,612 1,594,388 1,785,714
12/31/20x4 2,000,000 214,286 1,785,714 0

Solutions:
Initial measurement: (4M ÷ 4) x PV annuity due of 1 @12%, n=4 = 3,401,831
Subsequent measurement:
Date Collections Interest income Amortization Present value
Jan. 1, 20x1 3,401,831
Jan. 1, 20x1 1,000,000 - 1,000,000 2,401,831
Jan. 1, 20x2 1,000,000 288,220 711,780 1,690,051
Jan. 1, 20x3 1,000,000 202,806 797,194 892,857
Jan. 1, 20x4 1,000,000 107,143 892,857 0

The carrying amount of the notes receivable as of December 31, 20x1 is determined as follows:
Carrying amount of notes receivable - Jan. 1, 20x2 1,690,051
Add back: Collection on Jan. 1, 20x2 1,000,000
Carrying amount of notes receivable - Dec. 31, 20x1 2,690,051
Solution:
Initial measurement: (2.1M ÷ 6) x PV ordinary annuity of 1 @5%, n=6 = 1,776,492
Subsequent measurement:
Date Collections Interest income Amortization Present value
Jan. 1, 20x1 1,776,492
July 1, 20x1 350,000 88,825 261,175 1,515,317
Dec. 31, 20x1 350,000 75,766 274,234 1,241,083
July 1, 20x2 350,000 62,054 287,946 953,137
Dec. 31, 20x2 350,000 47,657 302,343 650,794
July 1, 20x3 350,000 32,540 317,460 333,333
Dec. 31, 20x3 350,000 16,667 333,333 0

Interest income in 20x1 = (88,825 + 75,766) = 164,591