Question

On December 31, 2020, Sheffield Company signed a $1,186,300 note to Tamarisk Bank. The market interest rate at that time was 12%. The stated interest rate on the note was 10%, payable annually. The note matures in 5 years. Unfortunately, because of lower sales, Sheffield’s financial situation worsened. On December 31, 2022, Tamarisk Bank determined that it was probable that the company would pay back only $711,780 of the principal at maturity. However, it was considered likely that interest would continue to be paid, based on the $1,186,300 loan.

Determine the amount of cash Sheffield 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 Sheffield received from the loan

$

eTextbook and Media

Prepare a note amortization schedule for Tamarisk Bank up to December 31, 2022. (Round answers to 0 decimal places, e.g. 5,275.)

Note Amortization Schedule (Before Impairment)
Date		Cash Received		Interest Revenue		Increase in Carrying Amount		Carrying Amount of Note
12/31/20								$enter a dollar amount
12/31/21		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount		enter a dollar amount
12/31/22		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount

eTextbook and Media

  

  

Determine the loss on impairment that Tamarisk Bank should recognize on December 31, 2022. (Round present value factors to 5 decimal places, e.g. 0.52500 and final answer to 0 decimal places, e.g. 5,275.)

Loss due to impairment

$

Answer 1

a) Amount of cash Sheffield received from the loan $1,100,777 Workings: Present value of principal ($1,186,300 * 0.56743) Present value of interest ($118.630 * 3.60478) Cash received S673,142 $427,635 $1.100.777 b) Date Note Amortization Schedule (Before Impairment) Cash Interest Increase in Carrying Received Revenue Carrying Amount of (10%) (12%) Amount Note $1,100,777 $118,630 $132,093 $13,463 $1,114.241 $118,630 $133,709 $15,079 $1,129,319 12/31/20 12/31/21 12/31/22 $1,129,319 $506,631 c) Loss due to impairment: Carrying amount of loan (12/31/22) Less: Present value of $711,780 due in 3 years ($711,780 * 0.71178) Present value of $118,630 payable annually for 3 years ($118,630 * 2.40183) Loss due to impairment $284,929 $337,760