ABC Lending signed a loan agreement with AMRO, lnc., on January 2, 2017. AMRO is borrowing $500,000
Question:
ABC Lending signed a loan agreement with AMRO, lnc., on January 2, 2017. AMRO is borrowing $500,000 for 10 years with a stated interest rate of 7%. AMRO will make a payment of $71,188.75 at the end of each year. AMRO paid $10,000 in points to ABC Lending on January 2, 2017. In connection with this transaction. ABC Lending paid fees to a third party for loan processing. These fees were 0.5% of the loan balance. ABC Lending also paid a bonus to an employee of 1% of the loan balance. Finally. ABC paid advertising costs of $1,500 and incurred expenses of $2,000 related to the preparation of the loan documents.
Prepare a memo to the file regarding the correct accounting treatment for this transaction for ABC Lending. Use the Codification for support.
Step by Step Answer:
Intermediate Accounting
ISBN: 978-0134730370
2nd edition
Authors: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella