*E7-27B (Impairments) On December 31, 2014, State Construction Company signed a $1,000,000 note to Third National Bank.

*E7-27B (Impairments) On December 31, 2014, State Construction Company signed a $1,000,000 note to Third National Bank. The market interest rate at that time was 15%. The stated interest rate on the note was 10%, payable annually. The note matures in 5 years. Unfortunately, because of lower sales, State Construction’s financial situation worsened. On December 31, 2016, Third National Bank determined that it was probable that the company would pay back only $700,000 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 State Construction received from the loan on December 31, 2014.

(b) Prepare a note amortization schedule for Third National Bank up to December 31, 2016.

(c) Determine the loss on impairment that Third National Bank should recognize on December 31,