ber 31, 2013, State Construction Company signeda 1.000.000 note to Third Nationa
ID: 2588273 • Letter: B
Question
ber 31, 2013, State Construction Company signeda 1.000.000 note to Third National Decem tk. Ihe market interest rate at that time was12 Bank payable annually. The note matures in 5 years. Note: Present Value Charts are attached. Round all calculations to o decimal places (example: $650.30 to S650) The stated-nt est rate on the note was 10% a) Prepare the journal entry made by Third National Bank on December 31, 2013 to record the Note Receivable. (6 points) Note: This chart is available for your use, but it will NOT be graded. Amortization Balance of Cash Received Carrying Discount or Value of No Revenue Discount/Premium Premium Receivab Interest Of Date 12/31/13 12/31/14 12/31/15 Prepare the relevant journal entry by Third National Bank to record interest for the year e 12/31/14. (6 points)Explanation / Answer
a.
d. Impairment:
Loan is impaired when the present value of expected future cash flows are less than the carrying amount of the note receivable:
present value of expected future cash flows:
Carrying amount on Dec.31 2015= 966199
Impairement = 966199- 567602= 398597
Entry:
Interest amount: Face value 10,00,000 Coupon/stated Rate of interest 10.00% Frequency of payment(in months) 12 Interest amount 1000000*0.1*12/12= 1,00,000 Present value calculation: yield to maturity/Effective rate 12.00% Effective interest per period(i) 0.12*12/12= 0.12 Number of interest payments (n): Years to redemption 5 Interest payments per year 1 Total interest payments(n) 5 Cash flow Discount factor Discounted cash flow Interest payments-Annuity (12%,5 periods) 1,00,000 3.6048 3,60,478 Principle payments -Present value (12%,5 periods) 10,00,000 0.5674 5,67,427 Note recording amount 9,27,904 Face value 10,00,000 Premium 72,096Related Questions
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