Notes Receivable- Impairment

Question 1

What are impaired loans receivable written down to?

Answer 1

-PV of future cash flows expected to be collected using original effective interest rate of loan or Fair Value if this is more easily determinable

Question 2

How is the write down on an impaired loan receivable accomplished?

Answer 2

-With a debit to bad debt expense and a credit to a contra receivable account

Question 3

What are two methods of recording interest on impaired loan receivables?

Answer 3

• Interest method (recognize interest revenue as usual)

- Cost Recovery Method (delays recognition of interest revenue until entire carrying value received)