Question

On December 31, 2020, Pharoah Company signed a $1,132,500 note to Novak Bank. The market interest rate at that time was 10%. The stated interest rate on the note was 8%, payable annually. The note matures in 5 years. Unfortunately, because of lower sales, Pharoah’s financial situation worsened. On December 31, 2022, Novak Bank determined that it was probable that the company would pay back only $679,500 of the principal at maturity. However, it was considered likely that interest would continue to be paid, based on the $1,132,500 loan.

Determine the amount of cash Pharoah received from the loan on December 31, 2020. (Round present value factors to 5 decimal places, e.g. 0.52513 and final answer to 0 decimal places, e.g. 5,275.)

Amount of cash Pharoah received from the loan

Prepare a note amortization schedule for Novak Bank up to December 31, 2022.

Determine the loss on impairment that Novak Bank should recognize on December 31, 2022. (

Answer 1

Required 1 $ mount of cash Pharoah received from the loan 1,046,637 discounting factor @10 % Particulars Amount 0.90909 Year 1 face value of note payable Pv factor@ 10%-5th year Present value of face value (A) 1,132,500 0.82645 Year 2 0.62092 0.75131 Year 3 703,192 0.68301 Year 4 0.62092 Year 5 Particulars Interest Payments (1,132,500 x 8%) Annuity factor @ 10% for 5 years Present value of face value (B) Amount 3.79079 $ 90,600 3.79079 343,446 Present value (A+B) 1,046,637

Required 2 note amortization schedule for Novak Bank Amortization Schedule increase in carrying carrying Date Cash received interest revenue amount on note amount DX 10 % (c) B- A $ (B) A D 1,046,637 112/31/20 2 12/31/21 3 12/31/22 104,664 $ 106,070 $ 107,617 $ 90,600 $ 90,600 $ 90,600 $ 14,064 $ 15,470 $ 17,017 $ 1,060,701 1,076,171 $ 1,093,188 Required 3 The loss on impairment that Novak Bank= $ 357,365 PV factor @ 10 % $ 1,093,188 $ (510,515) $ (225,309) Carrying amount of loan 12/31/2022 Present value of 679,500 due in 3years 679500 x 0.75131 Present value of 90,600 payable annually in 3years = 90,600 x 2.48685 0.90909 Year 1 0.82645 Year 2 Less Less 0.75131 Year 3 Loss due to impairment 357,365 2.48685 Please comment if you have any doubt Please give thumps up if you are satisfied with the answer