Problem 7-4

Principal Amount 5,000,000

Direct origination cost 457,500
Origination fee charged - 200,000
Initial Carrying Amount 5,257,500 (1)

(2)
Date Interest ReceivedInterest Income Amortization Carrying Amount
Jan 1, 2022 5,257,500
Dec 31, 2022 500,000 420,600 79,400 5,178,100
Dec 31, 2023 500,000 414,248 85,752 5,092,348
Dec 31, 2024 500,000 407,652 92,348 5,000,000

Journal Entries
Jan 1, 2022 Loan Receivable 5,000,000
Cash 5,000,000

Cash 200,000
Unearned interest income 200,000

Unearned Income 457,500

Cash 457,500

Dec 31, 2022 Cash 500,000

Interest income 500,000

Interest Income 79,400

Unearned interest income 79,400

Dec 31, 2023 Cash 500,000

Interest income 500,000

Interest Income 85,752

Unearned interest income 85,752

Dec 31, 2024 Cash 500,000

Interest income 500,000

Interest Income 85,752

Unearned interest income 85,752

Cash 5,000,000
Loan Receivable 5,000,000
Problem 7-10

Reuirement 1
Expected credit loss from default 2,500,000
Mulitply by: Credit risk for 12 months 2%
Impairment loss, Jan 1, 2023 50,000

Requirement 2
Expected credit lifetime credit loss (2,100,000*15%) 315,000
Allowance for loan impairment-Jan 1, 2022 - 50,000
Additional impairment loss Dec 31, 2022 265,000

Reuirement 3
12-month expected credit loss (1,500,000*1%) 15,000
Allowance for loan impairment Dec 31, 2022 315,000
Reversal of impairment loss 300,000

Requirement 4

Jan 1, 2022 Loan receivable 6,000,000

Cash 6,000,000

Impairment loss 50,000

Allowance for impairment 50,000

December 31, 2022 Impairment loss 265,000

Allowance for impairment 265,000

Cash 600,000
Interest income 600,000

December 31, 2023 Cash 600,000

Interest income 600,000

Allowance for impairment 300,000

Gain on reversal of impairment 300,000

December 31, 2024 Cash 5,400,000

Allowance for loan impairment 15,000
Loss from default 585,000
Loan receivable 6,000,000
Prob 6-9
Face value of note 6,000,000
Present value (6,000,000*0.75) 4,500,000 Requirement 2
Unearned interest income 1,500,000 Date
Jan 1, 2022
Present value of note 4,500,000 Dec 31,2022
Carrying amount of equipment 4,800,000
Loss 300,000

Requirement 1
Journal entries for 2022
Note receivable 6,000,000
Loss on sale of of equipment 300,000
Equipment 4,800,000
Unearned interest income 1,500,000

Unearned interest 450,000

Interest income 450,000
quirement 2
Interest Income Unearned interest Present value
1,500,000 4,500,000
450,000 1,050,000 4,950,000