(Expected Cash Flows) On December 31, 2017, 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, 2019, 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, 2017.(b) Prepare a note amortization schedule for Sauk City Bank up to December 31, 2019.(c) Determine the loss on impairment that Sauk City Bank should recognize on December 31, 2019.

Question

(Expected Cash Flows) On December 31, 2017, 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, 2019, 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, 2017.
(b) Prepare a note amortization schedule for Sauk City Bank up to December 31, 2019.
(c) Determine the loss on impairment that Sauk City Bank should recognize on December 31, 2019.

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