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How much should the loans receivable be initially recognized

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January 1, 2016, Virgilio Company, a calendar-year firm, gave a loan to Engbee Enterprises amounting to P1,000,000 and received a two-year 12%, P1,000,000 note. The note calls for annual interest to be paid each January 2. Virgilio collected the interest on January 2, 2017 as scheduled. The company incurred origination cost amounting to P57,851, 40% of which has been charged to Engbee Enterprises. Yield rate on the loan with this arrangement was at 10%.

  • At December 31, 2017, however, based on Engbee's recent financial problems, Virgilio expects to collect only P900,000 of the amount due.
  • The P900,000 principal amount is expected to be collected in three annual installments on December 31, 2018, 2019 and 2020. Virgilio believes that 8% is the market's assessment of the time value of money as of December 31, 2017.

Requirements:

Problem 1) How much should the loans receivable be initially recognized?

Problem 2) What is the carrying value of the loans receivable as of December 31, 2016?

Problem 3) How much loss should be recognized in relation to the loan on December 31, 2017?

Problem 4) Journal entries on December 31, 2018, 2019, 2020 assuming that Virgilio Company collects the expected payments from Engbee Enterprises?

Reference no: EM132791694

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