Accounting for the Impairment of a Loan
Jayleen Associates loaned Norris Company $750,000 on January 1, 2006. The terms of the loan were payment in full on January 1, 2011, plus annual interest payments at 11%. The interest payment was made as scheduled on January 1, 2007; however, due to financial setbacks, Norris was unable to make its 2008 interest payment. Jayleen considers the loan impaired and projects the following cash flows from the loan as of December 31, 2008, and 2009. Assume that Jayleen accrued the interest at December 31, 2007, but did not continue to accrue interest due to the impairment of the loan.
Projected Cash Flows:
|
|
Amount Projected |
Amount Projected |
|
Date of Flow |
as of Dec 31, 2008 |
as of Dec 31, 2009 |
|
Dec 31, 2009 |
$ 50,000 |
$ 50,000 |
|
Dec 31, 2010 |
100,000 |
150,000 |
|
Dec 31, 2011 |
200,000 |
300,000 |
|
Dec 31, 2012 |
300,000 |
250,000 |
|
Dec 31, 2013 |
100,000 |
|
Instructions:
1. Prepare the valuation adjusting entry at December 31, 2008.
2. Prepare the journal entry to record the $50,000 receipt on December 31, 2009.
3. Prepare the valuation adjusting entry at December 31, 2009.
4. Prepare the 2010 journal entries, assuming the receipt of $150,000 as scheduled; also assume that estimates for future cash flows remain the same as they were at the end of 2009.