On December 31, 2014, State Construction Company signed a $1,000,000 note to Third National Bank. The market
Question:
On December 31, 2014, State Construction Company signed a $1,000,000 note to Third National Bank. The market interest rate at that time was 15%. The stated interest rate on the note was 10%, payable annually. The note matures in 5 years. Unfortunately, because of lower sales, State Construction’s financial situation worsened. On December 31, 2016, Third National Bank determined that it was probable that the company would pay back only $700,000 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 State Construction received from the loan on December 31, 2014.
(b) Prepare a note amortization schedule for Third National Bank up to December 31, 2016.
(c) Determine the loss on impairment that Third National Bank should recognize on December 31, 2016.
Step by Step Answer:
Intermediate Accounting
ISBN: 978-1118147290
15th edition
Authors: Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield