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...

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. 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. Does this situation create ethical issues?