Refer to Problem 2.12. Assume that Walmart has accounted for the value of the land at acquisition cost and sells the land on December 31, 2018,for a two-year note receivable with a present value of $180,000 instead of for cash.

Data from 2.12

Assume Walmart acquires a tract of land on January 1, 2016, for $100,000 cash. On December 31, 2016, the current market value of the  land is $150,000. On December 31, 2017, the current market value of the land is $120,000. The  firm sells the land on December 31, 2018, for $180,000 cash.

The note bears interest at 8% and requires cash payments of $100,939 on December 31, 2019 and 2020. Interest rates for notes of this risk level increase to 10% on December 31, 2019, resulting in a market value for the note on this date of $91,762.

REQUIRED
Ignore income taxes. Indicate the effect on the balance sheet and income statement of the preceding information for 2018, 2019, and 2020 under each of the following valuation methods.
a. Valuation of the note at the present value of future cash flows using the historical market interest rate of 8% (Approach 1)
b. Valuation of the note at the present value of future cash flows, adjusting the note to fair value upon changes in market interest rates and including unrealized gains and losses in net income (Approach 2)
c. Why is retained earnings on December 31, 2020, equal to $101,878 in both cases despite the reporting of different amounts of net income each year?