On December 31, 2014, Jackson Company borrowed $62,092 from Rodgers Bank by sign

Question

On December 31, 2014, Jackson Company borrowed $62,092 from Rodgers Bank by signing a 5-year, $100,000 zero interest bearing note. The note was issued to yield 10% interest. However, in 2016, Jackson Company had financial difficulty. As a result, at December 31, 2016, Rodgers Bank determined that is was probable that it would receive only $75,000 at note maturity. The market rate of interest on loans of this nature is now 11%.

10% 11%

Present value of 1 for 3 periods .75132 .73119

Present value of 1 for 5 periods .62092 .59345

What is the amount of impairment loss, if any, to be recorded by Rodgers Bank on December 31, 2016?

a. $0.

b. $54,839.

c. $56,349.

d. $75,131.

e. $18,782.

f. $20,292.

Please show work!

Thank you!

Explanation / Answer

Impairment Loss = 100,000- 75,000 = 25,000 X 0.75132 = $ 18,783 or nearest to $18,782

So correct option is e. $ 18,782

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