AR Flashcards
1
Q
How are Loan impairments calculated and what is the journal?
A
A loan impairment is recorded by reducing the BV by the PV of future cash flows, discounted by original rate, to get impairment loss. The loss is recorded as a debit to bad debt and credit to allowance for decline.
2
Q
Is interest revenue recognized under the interest method and the cost recovery method?
A
Yes, under the interest method it is used bc the note is discounted to PV. The cost recovery method recognizes interest revenue only after cash equal to the new carrying value is collected. for example: During Year 3, total collections surpassed the $25,000 new carrying value. $3,000 of interest revenue is recognized under this method in Year 3 ($28,000 − $25,000).
