Principal amount 4,000,000

Origination fee received from borrower 350,000

Direct origination cost incurred 61,500

The effective rate on the loan after considering the direct origination cost incurred and
origination fee received is 12%.

1. What is the carrying amount of the loan receivable on January 1, 2016?

a. 4,000,000
b. 4,650,000
c. 4,411,500
d. 3,711,500

2. What is the interest income for 2016?

a. 400,000
b. 558,000
c. 529,380
d. 445,380

3. What is the carrying amount of the loan receivable on December 31, 2016?

a. 4,000,000
b. 3,756,880
c. 4,243,120
d. 3,600,000

Problem 28 (IAA)

Kalibo bank loaned P5, 000,000 to Caticlan Company on January 1, 2014. The terms of the loan
require principal payments of P1, 000,000 each year for 5 years plus interest at 8%.

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The first principal and interest payment is due on January 1, 2015. Caticlan Company made the
required payments during 2015 and 2016.

However, during2016 Caticlan Company began to experience financial difficulties , requiring

Kalibo Bank to reassess the collectability of the loan.

On December 31, 2016, Kalibo Bank has determined that the remaining principal payment will
be collected but the collection of the interest in unlikely, Kalibo Bank did not accrue the
interest on December 31,2016.

The present value of 1 at 8% is as follows:

For one period 0.926

For two periods 0.857
For three periods 0.794

1. What is the loan impairment loss on December 31,2016?

a. 423,000
b. 217,000
c. 222,000
d. 0
 2. What is the interest income for 2017?

a. 126,160
b. 142,640
c. 240,000
d. 0

3. What is the carrying amount of the loan receivable on December 31, 2017?

a. 2,000,000
b. 1,925,640
c. 1,640,360
d. 1,783,000

Problem 29 (IAA)

On January 1, 2016, Oceanic Bank made a P1, 000, 000, 8% loan. The P80, 000 interest is
receivable at the end of each year, with the principal amount to be received at the end of five
years. At the end of 2016, the first year’s interest of P80, 00 has not yet been received because
the borrower is experiencing financial difficulties. The borrower negotiated a restructuring of
the loan.

The payment of all of the interest for 5 years will be delayed until the end of the 5 – year loan
term. In addition, the amount of principal repayment will be dropped from P1, 000,000 to P500,
000.

The PV of 1 at 8% for 4 periods is .735. No interest revenue has been recognized in 2016 in
connection with the loan.

1. What is the loan impairment loss on December 31, 2016?

a. 338,500
b. 238,500
c. 388,000
d. 288,000 19
2. What is the interest income for 2017?

a. 80,000
b. 52,920
c. 48,960
d. 0

Problem 30 (IAA)

On December 31, 2016, Solid Bank has a loan receivable of (4,000,000 from a borrower that it
is carrying at face value and is due on December 31,2021. Interest on the loan is payable at 9%
each December 31,

The borrower paid the interest due on December 31, 2016 but informed the bank that it would
probably miss the next two years’ interest payments.

After that the borrower is expected to resume the annual interest payment but it would make
the principal payment one year late, with interest paid for that additional year at the time of
principal payment.

The PV of 1 at 9% is.772 for three periods, .708 four periods, .650 for five periods, and .596 for
six periods.
What is the loan impairment loss for 2016?

a. 634,640
b. 720,000
c. 721,960
d. 913,120

Problem 31 (AICPA Adapted)

Diane Company sold loans with a P2, 200 fair value and a carrying amount of P2,000. The entity
obtained an option to purchase similar loans and assumed a recourse obligation to repurchase
loans. The entity also agreed to provide a floating rate of interest to the transferee.

Fair values

Cash proceeds 2,100

Interest rate swap 140
Call option 80
Recourse obligation ( 20)

1. What is the gain (loss) on the sale?

a. 320
b. 200
c. (100)
d. 120

2. What is included in the journal entry to record the transfer on the books of Diane
Company?

a. A debit to call option

b. A credit to interest rate swap
c. A debit to loans
d. A credit to cash
20

3. Assume that Diane Company agreed to service the loans without explicitly stating the
compensation. The fair value of the service is P50. What are the net proceeds and the
gain (loss) on the sale, respectively?

a. 2,200 and 200

b. 2,250 and 250
c. 2,150 and 150
d. 2,200 and (250)

Problem 31 (IAA)

Aman Company provided the following data:

Items counted in the bodega 4,000,000

Items included in the count specifically segregated
per sale contract 100,000
Items in receiving department, returned by customer,
In good condition 50,000
Items ordered and in the receiving department 400,000
Items ordered, invoice received but goods not
Received, Freight is on account of seller . 300,000
Items shipped today, invoice mailed, FOB shipping point 250,000
Items shipped today, invoice mailed, FOB destination 150,000
Items currently being used for window display 200,000
Items on counter for sale 800,000
Items in receiving department, refused because of damage 180,000
Items included in count, damaged and unsalable 50,000
Items in the shipping department 250,000

What is the correct amount of inventory?

a. 5,700,000
b. 6,000,000
c. 5,800,000
d. 5,150,000

Problem 32 (IAA)

Ram company provided the following information at the end of current year.

Finished goods in storeroom, at cost, including overhead

Of P400, 000 or 20% 2,000,000
Finished goods in transit, including freight charge of
P20, 000. FOB shipping point 250,000
Finished goods held by salesman, at selling price,
Cost, P100,000 140,000
Goods in process, at cost of materials and direct labor 720,000
Materials 1,000,000
Materials in transit, FOB destination 50,000
Defective matrials returned to suppliers 100,000
Shipping supplies 20,000
Gasoline and oil for testing finished goods 110,000
Machine lubricants 60,000

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What is the correct amount of inventory?

a. 4,00,000
b. 4,170,000
c. 4,270,000
d. 4,090,000

Problem 33 (AICPA Adapted)

Brunette Company shipped inventory on consignment to Heart Company with original cost
P500,00. Heart paid P12,000 for advertising that was reimbursable from Brunette.

At the end of the year, 40% of the inventory was sold for P320,000. The agreement stated that
a commission of 10% will be provided to Heart for all sales.

What amount should be reported as net income from the consignment?

a. 100,000
b. 120,000
c. 76,000
d. 0