Assume that on January 1, Bush Enterprises borrowed $4,760 from Banking Corporation, promising to pay $5,000 at the end of one year. The effective rate of interest on the loan is approximately 5 percent ([$5,000 - $4,760]/ $4,760). Suppose that the general rate of infla¬ tion for that year was 10 percent. REQUIRED:

a. How much interest revenue did Banking Corporation recognize for the year? (Hint: The difference between the cash payment and the face value of the note receivable is interest revenue that Banking Corporation will earn over the life of the note.)

b. Do you think that Banking Corporation is better off at the end of the year by the amount of the interest revenue? Did Banking Corporation have more or less purchasing power at the end of the year? How much?

c. Which of the two parties, Bush Enterprises or Banking Corporation, seems to have ended up with the better deal? Could one determine this from a careful examination of the finan¬ cial statements prepared on the basis of generally accepted accounting principles? Why or why not?