Belushi, Inc. owes Cusack County Trust $40 million under an 5% note with six years remaining to maturity. Due to financial difficulties of Belushi, the previous year's interest ($2.5 million) was not received. Cusack believes there is a 20% chance that Belushi will default on the note, and that, if Belushi defaults, the present value of all amounts Cusack eventually will collect is $22.5 million.

Required:
1. Compute the impairment loss that Cusack would record.
2. Assume Cusack is reporting under ASU 2016-13 and therefore using the CECL model. Compute the impairment loss that Cusack would record.

Question

Required:
1. Compute the impairment loss that Cusack would record.
2. Assume Cusack is reporting under ASU 2016-13 and therefore using the CECL model. Compute the impairment loss that Cusack would record.

Quizplus · Accepted Answer

The Answer of Belushi, Inc. owes Cusack County Trust $40 million under an 5% note with six years remaining to maturity. Due to financial difficulties of Belushi, the previous year's interest ($2.5 million) was not received. Cusack believes there is a 20% chance that Belushi will default on the note, and that, if Belushi defaults, the present value of all amounts Cusack eventually will collect is $22.5 million.

Required:
1. Compute the impairment loss that Cusack would record.
2. Assume Cusack is reporting under ASU 2016-13 and therefore using the CECL model. Compute the impairment loss that Cusack would record.