Textbook Problem

Researching GAAP

Situation

The Tenth National Bank had taken possession of a shopping mall in foreclosure of a mortgage. When the mall was inspected prior to being sold by the bank to a real estate company, it was discovered that it had extensive asbestos problems. An estimate indicated that it would cost $1 million to remove the asbestos. The bank has also purchased an office building for its headquarters. The building was inspected before the purchase and a similar asbestos problem was discovered. An estimate indicated that it would cost $2 million to remove the asbestos, and the bank completed the purchase. The bank’s president has asked you how to account for these transactions.

Directions

1. 1. Research the related generally accepted accounting principles and prepare a short memo to the president that answers her question. Cite your references and applicable paragraph numbers.
2. 2. Does this situation create ethical issues?