Individual Income Taxes
43rd Edition
ISBN: 9780357109731
Author: Hoffman
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Question
Chapter 18, Problem 49P
a.
To determine
Provide information on the effects of the transactions on the taxable income of R Company for the year 2019.
b.
To determine
Provide information on the accounting treatment of reserves if R Company has used the reserve method to compute his taxable income for the 10 years the company has been in existence.
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Noel Bank loaned 9,000,000 to a borrower on January 1, 2017. The terms of the loan were payment in full on January 1, 2022, plus annual interest payment at 12%. The debtor paid interest on January 1, 2018 as scheduled. However, due to financial setbacks, the debtor was unable to pay interest on 2019. BPI accrued interest on Dec. 31, 2018 but did not continue to accrue interest for 2019 due to considered impairment of the loan. On December 31, 2019, BPI projected these cash flows:
December 31, 2020 - P 1,500,000
December 31, 2021 - 2,000,000
December 31, 2022 - 3,000,000
December 31, 2023 - 2,500,000
The present value of 1 at 12% is as follows:
For 1 period - 0.8929
For 2 periods - 0.7972
For 3 periods - 0.7118
For 4 periods - 0.6355
How much should be recognized as interest income for 2020?
What is the loan impairment loss on December 31, 2021?
Kalino Bank loaned P5,000,000 to Caticlan Company on January 1, 2019. The terms of the loan require
principal payments of P1,000,000 each year for 5 years plus interest at 8%.
The first principal and interest payment is due on January 1, 2020. Caticlan Company made the required
payments during 2020 and 2021.
However, during 2021 Caticlan Company began to experience financial difficulties, requiring Kalibo Bank
to reassess the collectability of the loan.
On December 31, 2021, Kalibo Bank determined that the remaining principal payment will be collected
but the collection of the interest is unlikely. Kalibo Bank did not accrue the interest on December 31,
2021.
The present value of 1 at 8% is as follows:
0.926
For one period
For two periods
For three periods
0.857
0.794
a. 423,000
b. 217,000
c. 222,000
d. 0
Noel Bank loaned 9,000,000 to a borrower on January 1, 2017. The terms of the loan were payment in full on January 1, 2022, plus annual interest payment at 12%. The debtor paid interest on January 1, 2018 as scheduled. However, due to financial setbacks, the debtor was unable to pay interest on 2019. Noel Bank accrued interest on Dec. 31, 2018 but did not continue to accrue interest for 2019 due to considered impairment of the loan. On December 31, 2019, Noel Bank projected these cash flows:
December 31, 2020 - P 1,500,000
December 31, 2021 - 2,000,000
December 31, 2022 - 3,000,000
December 31, 2023 - 2,500,000
The present value of 1 at 12% is as follows:
For 1 period - 0.8929
For 2 periods - 0.7972
For 3 periods - 0.7118
For 4 periods - 0.6355
How much is the impairment loss to be recognized on December 31, 2019?
Chapter 18 Solutions
Individual Income Taxes
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