Introduction:

The history of Larkin bank includes it being a locally operated bank in the United States of America during the early 19^th 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

Year	Interest Payment	Interest Expense	Amortization of Bond Discount	Debit Balance in the Bond Discount	Credit 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:

Date		Debit	Credit
2005	Cash	11,640
2005	Discount on Series A Bond	360
2005	Fixed Rate – Series A bond		12000
2006	Interest Expense	462
2006	Discount on Series A Bond		12
2006	Cash		450