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1

When is a loan impaired?

based on current information and events, it is probable that a creditor will be unable to collect all amounts due (both principal and interest) according to the contractual terms of the loan agreement

2

Define loan according to FASB ASC 310-10-20

a loan is a contractual right to receive money on demand or on fixed or determinable dates recognized as an asset in the creditor's balance sheet

3

FASB ASC 310-10-35-13 applies to all loans, uncollateralized as well as collateralized, except for what 4 things?

1. large groups of smaller-balance homogeneous loans that are collectively evaluated for impairment, such as credit cards, residential mortgages and consumer installment loans
2. loans that are measured at FV or lower of cost or FV
3. leases
4. debt securities as defined in FASB ASC 320-10

4

When a loan is impaired, a creditor shall measure the impairment based on what?

on the present value of expected future cash flows discounted at the loan's effective interest rate, except that as a practical matter, a creditor may measure impairment based on a loan's observable market price or the FV of the collateral if the loan is collateral dependent

5

If the measurement of the impaired loan is less than the recorded investment in the loan, the shall recognize an impairment how?

by creating a valuation allowance with a corresponding charge to bad-debt expense or by adjusting an existing valuation allowance for the impairment loan with a corresponding charge or credit to bad-debt expense

6

If significant changes (increases or decreases) in the amount or timing of an impaired loan's expected future cash flow, or if actual cash flows are significantly different from those previously projected, what should a creditor do?

the creditor shall recalculate the impairment. The net carrying amount of the loan shall at no time exceed the recorded investment in the loan

7

FASB ASC 310-10-35-40 requires that one of two alternative income recognition methods be used to account for changes in the net carrying amount of an impaired loan subsequent to the initial measure of impairment. What is the first method?

Under the first method, a creditor would accrue interest on the net carrying amount of the impaired loan and report other changes in the net carrying amount of the loan as an adjustment to bad-debts expense.

8

FASB ASC 310-10-35-40 requires that one of two alternative income recognition methods be used to account for changes in the net carrying amount of an impaired loan subsequent to the initial measure of impairment. What is the second method?

Under the second method, a creditor would recognize all changes in the net carrying amount of the loan as an adjustment to bad-debts expense.