On December 31, 2025, Conchita Martinez Company signed a $1,000,000 note to Sauk City Bank. The market

Question:

On December 31, 2025, Conchita Martinez Company signed a $1,000,000 note to Sauk City Bank. The market interest rate at that time was 12%. The stated interest rate on the note was 10%, payable annually. The note matures in 5 years. Unfortunately, because of lower sales, Conchita Martinez’s financial situation worsened. On December 31, 2027, Sauk City Bank determined that it was probable that the company would pay back only $600,000 of the principal at maturity. However, it was considered likely that interest would continue to be paid, based on the $1,000,000 loan.


Instructions

a. Determine the amount of cash Conchita Martinez received from the loan on December 31, 2025.

b. Prepare a note amortization schedule for Sauk City Bank up to December 31, 2027.

c. Determine the loss on impairment that Sauk City Bank should recognize on December 31, 2027.

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Related Book For  book-img-for-question

Intermediate Accounting

ISBN: 9781119790976

18th Edition

Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield

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