Larkin bank Harvard Case Solution & Analysis

Introduction:

The history of Larkin bank includes it being a locally operated bank in the United States of America during the early 19th Century. The organization grew from that time to the current stage at 650 Billion Dollars of worth projected for the year 2019 in total assets. It is also considered in the top five banks of the country.

The organization currently boasts 2580 finance centers throughout the 35 states in the U.S. The entity is a public traded organization with listing in NYSE and a shareholder criteria depends on confidence and loyalty. The organization satisfies its investors with a diverse portfolio which focuses on retail, corporate and institutional banking with a huge number of activities considering mortgage lending to the wealth management of its clients.

The current case study deals with the FASB issuing an accounting standard dealing with the Fair Value Election in 2007, this accounting standard deals with measuring financial assets and liabilities on their fair values and the resulting in gains and losses being recognized as unrealized gain/losses in the current financial statements.

This case study will be dealing with the Larkin Bank considering Fair Value Election for its financial liability; which is a fixed rate Series A – Bonds having par value of 12 Billion Dollars at its inception.

Larkin bank Harvard Case Solution & Analysis

Q. 1     Prepare journal entries for the Senior Debt Facility Fixed Rate – Series A bond issued on January 1, 2005 with a stated coupon rate of 3.75% (payable annually) when the market rate was 3.97%. This bond matures in 20 years on December 31, 2025. As part of your response, prepare an amortization schedule for the bond.

 

 

The amortization schedule and the transactions for the bond recognition in the financial statements are mentioned below:

Bond Amortization Schedule
YearInterest Payment Interest ExpenseAmortization of Bond DiscountDebit Balance in the Bond DiscountCredit Balance in the Bond Payable Value of the Bond
2005                         360                 12,000         11,640
2006            450            462                      12                         348                 12,000         11,652
2007            450            463                      13                         335                 12,000         11,665
2008            450            463                      13                         322                 12,000         11,678
2009            450            464                      14                         308                 12,000         11,692
2010            450            464                      14                         294                 12,000         11,706
2011            450            465                      15                         279                 12,000         11,721
2012            450            465                      15                         264                 12,000         11,736
2013            450            466                      16                         248                 12,000         11,752
2014            450            467                      17                         232                 12,000         11,768
2015            450            467                      17                         214                 12,000         11,786
2016            450            468                      18                         197                 12,000         11,803
2017            450            469                      19                         178                 12,000         11,822
2018            450            469                      19                         159                 12,000         11,841
2019            450            470                      20                         139                 12,000         11,861
2020            450            471                      21                         118                 12,000         11,882
2021            450            472                      22                            96                 12,000         11,904
2022            450            473                      23                            73                 12,000         11,927
2023            450            473                      23                            50                 12,000         11,950
2024            450            474                      24                            25                 12,000         11,975
2025            450            475                      25                              0                 12,000         12,000

 

The financial journal Entries for the organization at the time of inception are:

 

DateDebitCredit
2005Cash         11,640
2005Discount on Series A Bond               360
2005Fixed Rate – Series A bond12000
2006Interest Expense               462
2006Discount on Series A Bond                 12
2006Cash               450

 

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