Problem Solving - Loan Receivable

1 Nasty Bank

Principal amount 4,000,000

Direct origination cost 150,000
Origination fees received from the borrower (342,100)
Initial Carrying amount of Loan Receivable 3,807,900

2019
1/1/2019 To record the loan receivable

Loan receivable 4,000,000

Cash 4,000,000

To record the direct origination cost incurred by bank

Unearned interest income 150,000

Cash 150,000

To record the origination fee received from borrower

Cash 342,100
Unearned interest income 342,100

Interest Interest
received Income (12%) - Amortization Carrying
Date (10%) - SR ER (Discount) amount
1/1/2019 3,807,900
12/31/2019 400,000 456,948 56,948 3,864,848
12/31/2020 400,000 463,782 63,782 3,928,630
12/31/2021 400,000 471,370 71,370 4,000,000

To compute the interest received (Principal x stated rate x time)

To compute the interest income (Carryng amount (previous year) x effective rate x time)
To compute amortization (Interest income - Interest received)
To compute new carrying amount (Carrying amount (previous year) + Amortization (Discount)

12/31/2019 To record the collection of interest

Cash 400,000
Interest income 400,000

To record the amortization of discount

Unearned interest income 56,948

Interest income 56,948

12/31/2020 To record the collection of interest

Cash 400,000
Interest income 400,000

To record the amortization of discount

Unearned interest income 63,782

Interest income 63,782

12/31/2021 To record the collection of interest

Cash 400,000
Interest income 400,000

To record the amortization of discount

Unearned interest income 71,370

Interest income 71,370

To record the collection of principal

Cash 4,000,000
Loan receivable 4,000,000
2 Awesome Company

a. Principal amount 4,000,000

Direct origination cost 61,500
Origination fee received from borrower (350,000)
Initial carrying amount 3,711,500

Interest Interest
received Income (12%) - Amortization Carrying
b. Date (10%) - SR ER (Discount) amount
1/1/2019 3,711,500
12/31/2019 400,000 445,380 45,380 3,756,880
12/31/2020 400,000 450,826 50,826 3,807,706
12/31/2021 400,000 456,925 56,925 3,864,630
12/31/2022 400,000 463,756 63,756 3,928,386
12/31/2023 400,000 471,614 71,614 4,000,000

1/1/2019 To record the loan receivable

Loan receivable 4,000,000

Cash 4,000,000

To record the direct origination cost incurred by bank

Unearned interest income 61,500

Cash 61,500

To record the origination fee received from borrower

Cash 350,000
Unearned interest income 350,000

12/31/2019 To record the collection of interest

Cash 400,000
Interest income 400,000

To record the amortization of discount

Unearned interest income 45,380

Interest income 45,380

12/31/2020 To record the collection of interest

Cash 400,000
Interest income 400,000

To record the amortization of discount

Unearned interest income 50,826

Interest income 50,826