Question

On December 31, 2020, Ayayai Company signed a $1,061,900 note to Pina Bank. The market interest rate at that time was 11%. The stated interest rate on the note was 9%, payable annually. The note matures in 5 years. Unfortunately, because of lower sales, Ayayai’s financial situation worsened. On December 31, 2022, Pina Bank determined that it was probable that the company would pay back only $637,140 of the principal at maturity. However, it was considered likely that interest would continue to be paid, based on the $1,061,900 loan.

A.

Determine the amount of cash Ayayai 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 Ayayai received from the loan

$enter a dollar amount of cash Ayayai received from the loan

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

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

C. Determine the loss on impairment that Pina 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

$enter the Loss due to impairment in dollars

Answer 1

a.

Loan amount	1,061,900
PVF (11%,5 years)	0.59345
Present value	630185.9653
Interest on loan [1,061,900*9%]	95571
PVAF (11%, 5years)	3.69590
Present value	353220.8589
Total loan proceeds	983407

b.

Date	Cash received	Interest revenue [Carrying amount*11%]	Increase in carrying amount [Interest revenue - cash received]	Carrying amount of note
12/31/20				983407
12/31/21	95571	108175	12604	996011
12/31/22	95571	109561	13990	1010001

c.

Carrying amount of loan as on 12/31/22	1010001
Less: Present value of loan [637,140* PVF (11%,3 years)]	465871
Less: Present value of interest [95571 * PVAF (11%,3years)	233548
Loss due to impairment	310582

Workings:

Factor table:

	11%
1	0.90090
2	0.81162
3	0.73119
4	0.65873
5	0.59345
	3.69590