On December 31, 2014, 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, 2016, 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, 2014.
(b) Prepare a note amortization schedule for Sauk City Bank up to December 31, 2016.
(c) Determine the loss on impairment that Sauk City Bank should recognize on December 31, 2016?