Loan Receivable– Multiple Choice Problem

1. Immoderate Bank granted a loan to borrower on January 1, 2. What amount should be reported as accrued interest
2017. The interest on the loan is 10% payable annually receivable on December 31, 2017?
starting December 31, 2017. The loan matures in three A. 44,500
years on December 31, 2019. B. 60,000
C. 20,000
Principal amount 5,000,000 D. 0
Direct origination cost incurred 100,000 4. Knowhow Bank loaned P5,000,000 to a borrower on
Indirect origination cost incurred 50,000 January 1, 2015. The terms of the loan require principal
Origination fee charged against the borrower 340,000 payments of P1,000,000 each year for 5 years plus interest
at 8%.
After considering the origination fee charged against the
borrower and the direct origination cost incurred, the The first principal and interest payment is due on January 1,
effective rate on the loan is 12%. 2016. The borrower began to experience financial
difficulties, requiring the bank to reassess the collectability
1. What is the carrying amount of the loan receivable on of the loan.
January 1, 2017?
A. 4,760,000 On December 31, 2017, the bank has determined that the
B. 5,000,000 remaining principal payment will be collected as originally
C. 4,810,000 scheduled but the collection of the interest is unlikely.
D. 4,660,000
2. What is the interest income for 2017? The bank did not accrue the interest on December 31, 2017.
A. 571,200
B. 500,000 Present value of 1 at 8%
C. 476,000
D. 547,200 For one period 0,926
3. What is the carrying amount of the loan receivable on For two periods 0.857
December 31, 2017? For three periods 0.794
A. 5,000,000
B. 4,760,000 1. What is the impairment loss for 2017?
C. 4,831,200 A. 423,000
D. 4,910,944 B. 217,000
2. Charitable Bank granted a 10-year loan to Chaste Company C. 222,000
in the amount of P1,500,000 with a stated interest rate of D. 0
6%. Payments are due monthly and are computed to be 2. What is the interest income for 2018?
P16,650. A. 126,160
B. 142,640
Charitable Bank incurred P40,000 of direct loan origination C. 240,000
cost and P20,000 of indirect loan origination cost. In D. 0
addition, the bank charged Chaste Company a 4-point 3. What is the carrying amount of the loan receivable on
nonrefundable loan origination fee. December 31, 2018?
A. 2,000,000
1. Charitable Bank, the lender, has a carrying amount of B. 1,925,640
A. 1,440,000 C. 1,640,360
B. 1,480,000 D. 1,783,000
C. 1,500,000 5. Oblation Bank loaned P9,000,000 to a borrower on January
D. 1,520,000 1, 2015. The terms of the loan were payment in full on
2. Chaste Company, the borrower, has a carrying amount January 1, 2020, plus annual interest payment at 12%. The
of interest payment was made as scheduled on January 1,
A. 1,440,000 2016. However, due to financial setbacks, the borrower was
B. 1,480,000 unable to make the 2017 interest payment.
C. 1,500,000
D. 1,520,000 The bank considered the loan impaired and projected the
3. On December 1, 2017, Nicole Company gave Dawn cash flows from the loan on December 31, 2017. The bank
Company a P2,000,000, 12% loan. Nicole Company paid has accrued the interest on December 31, 2016, but did not
proceeds of P1,940,000 after the deduction of a P6,000 continue to accrue interest for 2017 due to impairment of the
nonrefundable loan origination fee. Principal and interest are loan. The projected cash flows are:
due in sixty monthly installments of P144,500 beginning
January 1, 2018. Amount of projected
Date of cash flow on December 31, 2017
The repayments yield an effective interest rate of 12% at a December 31, 2018 1,500,000
present value of P2,000,000 and 13.4% at a present value December 31, 2019 2,000,000
of P1,940,000. December 31, 2020 2,500,000
December 31, 2021 3,000,000
1. What amount of interest income should be reported in
2017? The present value of 1 at 12% is 0.89 for one period, 0.80
A. 22.333 for two periods, 0.71 for three periods, and 0.64 for four
B. 19.400 period.
C. 21,663
D. 20,000
 Loan Receivable– Multiple Choice Problem
1. What is the loan impairment loss for 2017? The present value of 1 at 10% for three periods is 0.75, and
A. 2,370,000 the present value of an ordinary annuity of 1 at 10% for three
B. 3,450,000 periods is 2.49.
C. 6,630,000
D. 2,450,000 1. What is the impairment loss for 2017?
2. What is the interest income for 2018? A. 752,000
A. 795,600 B. 600,000
B. 900,000 C. 250,000
C. 180,000 D. 748,000
D. 0 2. What is the interest income for 2018?
3. What is the carrying amount of the loan receivable on A. 200,000
December 31, 2018? B. 424,800
A. 5,925,600 C. 224,800
B. 4,845,600 D. 500,000
C. 6,330,000 3. What is the carrying amount of the loan receivable on
D. 7,500,000 December 31, 2018
6. Shrewd Bank loaned P10,000,000 to a borrower on January A. 5,000,000
1, 2015. The terms of the loan require principal payments of B. 3,750,000
P2,000,000 each year for 5 years plus interest at 10%. C. 4,472,800
D. 4,672,800
The first principal and interest payment is due on January 1, 8. On December 31, 2017, London Bank granted a P5,000,000
2016. The borrower made the required payments during loan to borrower with 10% stated rate payable annually and
2016 and 2017. maturing in 5 years. The loan was discounted at the market
interest rate of 12%.
However, during 2017 the borrower began to experience
financial difficulties, requiring the bank to reassess the Unfortunately, the financial condition of the borrower
collectibility of the loan. worsened because of lower revenue.

On December 31, 2017, the bank has determined that the On December 31, 2019, the bank determined that the
remaining principal payments will be collected but the borrower would pay back only P3,000,000 of the principal at
collection of the interest is unlikely. The bank has accrued maturity.
the interest for 2017.

The principal payments are expected to be P1,000,000 on However, it was considered likely that interest would
January 1,2018, P2,000,000 on January 1, 2019 and continue to be paid on the P5,000,000 loan.
P3,000,000 on January 1, 2020. Round off present value
factors to two decimal places. The present value of1 at 12% is .57 for five periods and .71
for three periods.
1. What is the loan impairment loss for 2017?
A. 1,180,000 The present value of an ordinary annuity of 1 at 12% is 3.60
B. 2,000,000 for five periods and 2.40 for three periods.
C. 1,290,000
D. 1,780,000 1. What is the amount of cash paid to the barrower on
2. What is the interest income for 2018? December 31, 2017?
A. 531,000 A. 4,400,000
B. 431,000 B. 4,500,000
C. 600,000 C. 5,000,000
D. 500,000 D. 4,650,000
3. What is the carrying amount of the loan receivable on 2. What is the carrying amount of the loan receivable
December 31, 2018? before impairment loss on December 31, 2019?
A. 5,000,000 A. 4,650,000
B. 4,741,000 B. 4,790,000
C. 4,310,000 C. 4,772,960
D. 3,122,000 D. 4,720,000
7. On December 31, 2017, Oregon Bank recorded an 3. What is the impairment loss on loan receivable to be
investment of P5,000,000 in a loan granted to a client. The recognized for 2019?
loan has a 10% effective interest rate payable annually every A. 2,000,000
December 31. The principal is due in full at maturity on B. 1,442,960
December 31, 2020. C. 1,922,960
D. 1,670,000
Unfortunately, the borrower is experiencing significant 9. On January 1, 2019, Global Bank loaned P3,000,000 to a
financial difficulty and will have difficult time in making full borrower. The contract specified that the loan had a 6-year
payment. term and a 9% interest rate.

The bank projected that the entire principal will be paid at Interest is payable annually every December 31 and the
maturity and 4% interest or P200,000 will be paid annually principal amount will be collected on December 31, 2024.
on December 31 of the next three years. There is no accrued Interest is collected for 2019.
interest on December 31, 2017
 Loan Receivable– Multiple Choice Problem
On December 31, 2019, the bank determined that the loan
has a 12-month probability of default of 10% and expected
to collect only 90% of the loan.

On December 31, 2020, the bank determined that there is a

significant increase in the credit risk of the loan but no
objective evidence of impairment.

Based on relevant information, the bank concluded that

there is a 30% probability of default over the remaining term
of the loan and it is expected that only 60% of the loan will
be collected. Interest is collected for 2020.

On December 31, 2021, the borrower was under financial

difficulty and the loan was considered impaired because
there is now objective evidence of impairment.

The bank agreed that only 40% of the principal will be

collected on due date. Interest is collected for 2021.

The present value of 1 at 9% is 0.65 for 5 periods, 0.71 for

four periods and 0.77 for three periods.

The entity decided to apply the three-stage approach of

determining the impairment of loan.

1. What amount should be recognized as impairment loss

for 2019?
A. 1,755,000
B. 1,245,000
C. 124,500
D. 300,000
2. What amount should be recognized as interest income
for 2020?
A. 270,000
B. 267,759
C. 223,506
D. 0
3. What amount should be recognized as impairment loss
for 2020?
A. 1,722,000
B. 1,200,000
C. 392,100
D. 516,600
4. What amount should be recognized as impairment loss
for 2021?
A. 2,076,000
B. 1,559,400
C. 1,800,000
D. 0
5. What amount should be recognized as interest income
for 2022?
A. 270,000
B. 102,196
C. 90,644
D. 83,160