Reference no: EM132771298

Karen Company reports a loan receivable from Jaja Company in the amount of Php 5,000,000. The initial loan's repayment terms include a 10% interest rate plus annual principal payments on December 31 each year of Php 1,000,000. The loan was made on January 1, 2015. Jaja Company made the Php 500,000 interest payment in 2015but did not make the Php 1,000,000 2016 principal payment nor the Php 500,000 2016 interest payment. Karen Company is preparing its annual financial statements at December 31, 2016. The loan receivable has a carrying value of Php 5,500,000 including the Php 500,000 interest receivable for 2016. Jaja Company is having financial difficulty and Karen Company has concluded that the loan is impaired. Analysis of Jaja Company financial conditions indicates the principal and interest currently due can be probably collected but it is probable that no other further interest can be collected.

The probable amount and timing of the collection is determined as follows:

December 31, 2017 - Php 1,750,000
December 31. 2018 2,000,000
December 31, 2019 1,750,000

Required: Based on the above and the result of your study, answer the following:

Problem 1. The present value of the expected future cash flow as of December 31, 2016

Problem 2. The loan impairment for the year 2016

Problem 3. How much is the interest income for the year 2017 assuming that Karen Company assessment of the collectability of the loan has not changed

Problem 4. How much is the interest income for the year 2018 assuming that Karen Company assessment of collectibility of the loan has not changed

Problem 5. How much is the carrying amount of the loan receivable as of December 31, 2018