Income, Cash Flow, and Future Losses
On January L 2017, Cermack National Bank loaned 55,000,000 under a 2-year, zero coupon note to a real estate developer. The bank recognized interest revenue on this note of approximately $400,000 per year. Due to an economic downturn, the developer was unable to pay the $5,800,000
maturity amount on December 31, 2018. The bank convinced the developer to pay $800,000 on December 31, 2018, and agreed to extend $5,000,000 credit to the developer despite the gloomy economic outlook for the next several years. Thus, on December 31, 2018, the bank issued a new 2-year, zero coupon note to the developer to mature on December 31, 2020, for $6,000,000. The bank recognized interest revenue on this note of approximately $500,000 per year.
The bank’s external auditor insisted that the riskiness of the new loan be recognized by increasing the allowance for uncollectible notes by $1,500,000 on December 31, 2018, and $2,000,000 on December 31, 2019. On December 31, 20201 the bank received $1,200,000 from the developer and learned that the developer was in bankruptcy and that no additional amounts would be recovered.
Required:
Which figure, net income or net cash flow, does the better job of telling the bank’s stock-holders about the effect of these notes on the bank? Explain by reference to the schedules prepared in Requirements 1 and 2.
Corporate Financial Accounting
Accounting Information Systems
Financial & Managerial Accounting
Fundamentals of Financial Management (MindTap Course List)
Probability and Statistics for Engineering and the Sciences
Fundamentals of Financial Management, Concise Edition (MindTap Course List)
Principles of Macroeconomics (MindTap Course List)
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
Foundations of Business (MindTap Course List)
ECON: MICRO4 (New, Engaging Titles from 4LTR Press)
Brief Principles of Macroeconomics (MindTap Course List)
STATISTICS F/BUSINESS+ECONOMICS-TEXT
Principles of Microeconomics (MindTap Course List)
Principles of Economics (MindTap Course List)
Essentials of Business Communication (MindTap Course List)
Financial And Managerial Accounting
Database Systems: Design, Implementation, & Management
Principles of Information Systems (MindTap Course List)
Fundamentals of Information Systems
Fundamentals of Information Systems
A Guide to SQL
Principles of Information Security (MindTap Course List)
Database Systems: Design, Implementation, & Management
Automotive Technology: A Systems Approach (MindTap Course List)
Principles of Information Systems (MindTap Course List)
Fundamentals of Geotechnical Engineering (MindTap Course List)
Precision Machining Technology (MindTap Course List)
Engineering Fundamentals: An Introduction to Engineering (MindTap Course List)
Mechanics of Materials (MindTap Course List)
Systems Analysis and Design (Shelly Cashman Series) (MindTap Course List)
Management Of Information Security
International Edition---engineering Mechanics: Statics, 4th Edition
Solid Waste Engineering
EBK ELECTRICAL WIRING RESIDENTIAL
Electric Motor Control
Principles of Geotechnical Engineering (MindTap Course List)
Fundamentals of Chemical Engineering Thermodynamics (MindTap Course List)
Automotive Technology
Steel Design (Activate Learning with these NEW titles from Engineering!)
Enhanced Discovering Computers 2017 (Shelly Cashman Series) (MindTap Course List)
Network+ Guide to Networks (MindTap Course List)
Structural Analysis
College Accounting (Book Only): A Career Approach
Corporate Financial Accounting
Cornerstones of Cost Management (Cornerstones Series)
College Accounting (Book Only): A Career Approach
PAYROLL ACCT.,2019 ED.(LL)-TEXT
Financial Accounting
Managerial Accounting
Financial & Managerial Accounting
Managerial Accounting: The Cornerstone of Business Decision-Making
Financial Accounting
Intermediate Accounting: Reporting And Analysis
College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
College Accounting, Chapters 1-27
Accounting (Text Only)
Survey of Accounting (Accounting I)
Accounting Information Systems
Economics (MindTap Course List)
MACROECONOMICS FOR TODAY
MKTG 12:STUDENT ED.-TEXT
Fundamentals of Financial Management (MindTap Course List)
Understanding Management (MindTap Course List)
Practical Management Science
Economics: Private and Public Choice (MindTap Course List)
Contemporary Marketing
Micro Economics For Today
Pkg Acc Infor Systems MS VISIO CD
Economics For Today
Essentials of Economics (MindTap Course List)
Microeconomics
Macroeconomics: Private and Public Choice (MindTap Course List)
Management, Loose-Leaf Version
Microeconomics: Private and Public Choice (MindTap Course List)
Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)
Purchasing and Supply Chain Management
Principles of Microeconomics
Principles of Macroeconomics (MindTap Course List)