Loan Impairment Entries

Problem 7-15
Kelompok VIII:
1.S ervian Dwiky A
F1314081
2.E rry Dwi Prabowo F1314099
3.Yulia Trisaptya F1314107
4.E lvira Primashita F1314112

Problem 7-15
(Loan Impairment Entries)
On january 1, 2010, Botosan Company (B.C.) issued a $1,200,000, 5-year, zero
interest bearing note to National Organization Bank (N.O.B). The note was
issued to yield 8% annual interest. Unfortunately, during 2011 Botosan fell into
financial trouble due to increased competition. After reviewing all available
evidence on December 2011, National Organization Bank decided that the loan
was impaired. Botosan will probably pay back only $800,000 of the principal at
maturity.
Instructions:
a) Prepare Journal entries for both B.C. and N.O.B. to record issuance of the note
on January 1, 2010.
b) Assuming that both B.C. and N.O.B. use the effective-interest method to
amortize the discount, prepare the amortization schedule for the note.
c) Under what circumstances can N.O.B. consider B.C.s note to be impaired.
d) Compute the loss NOB will sufer from B.C.s financial distress on December
31, 2011. What journal entries should be made to record this loss

a) Journal entries for both B.C. and N.O.B. to record

issuance of the note on January 1, 2010.
Present value of the note:
$1,200,000 PVF5,8% $1,200,000 x
x
0,68058
*) $816,700
Merupakan=
Pembulatan
Ke Atas Dari=
$816,696

$816,7
00

Journal entries to record issuance of the note :

Botosan Company

National Organization Bank

Cash
Note
$816,70
0
Note Payable
Cash
$816,70 Receivable
0

$816,7
00

$816,7
00

b) prepare the amortization schedule for the note

SCHEDULE OF NOTE DISCOUNT AMORTIZATION
EFFECTIVE-INTEREST METHOD
0% NOTE DISCOUNTED AT 8%
Date

Cash Paid

Interest
Expense

Discount
Amortized

1/1/10
31/12/10

$0

31/12/11

$0

31/12/12

$0

31/12/13
31/12/14

$0
$0

Carrying
Amount of
Note
$816,7
00
$882,036

$65,33
6
$70,56

$65,33
6
$70,56

3
$76,20
8
$82,30

3
$76,20
8
$82,30

$1,028,8
07
$1,111,1

5
$88,88
8
$383,3
00

5
$88,88
8
$383,3
00

02
$1,200,0
00

$952,599

c) Under what circumstances can N.O.B. consider B.C.s note to be

impaired.

Suatu piutang dianggap mengalami penurunan nilai bila terdapat kejadian yang
merugikan, menunjukkan dampak negatif arus kas di masa depan yang akan
diterima dari pelanggan. seperti:

Kesulitan keuangan signifikan yang dialami pelanggan.

Wanprestasi pembayaran

Renegosisasi syarat-syarat piutang disebabkan kesulitan keuangan pelanggan

Jadi N.O.B. bisa mempertimbangkan terjadinya penurunan nilai note receivable jika
terdapat kejadian yang menunjukkan dampak negatif arus kas di masa depan yang
akan diterima dari pelanggan. Di soal kejadian tersebut adalah Botosan fell into
financial trouble due to increased competition, After reviewing all available evidence
on December 2011, National Organization Bank decided that the loan was impaired.

d) Compute the loss NOB will suffer from B.C.s financial distress on
December 31, 2011. What journal entries should be made to record
this loss

The computation of the loss impairment:

Carrying amount of note (31/12/11)
Less: Present value of Note (800,000 x PVF3,8%)
800,000 x 0,79383
Loss due to impaiment

$952,599
$635,064
$317,535

Journal entries to the impairment loss:

Bad debt expense
Allowance for doubtful accounts

$317,53
5
$
317,
535

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