(Impairments) On December 31, 2014, Iva Majoli Company borrowed $62,092 from Paris Bank, signing a 5-year, $100,000 zero-interest-bearing note. The note was issued to yield 10% interest. Unfortunately, during 2016, Majoli began to experience financial difficulty. As a result, at December 31, 2016, Paris Bank determined that it was probable that it would receive back only $75,000 at maturity. The market rate of interest on loans of this nature is now 11%.
Instructions
(a) Prepare the entry to record the issuance of the loan by Paris Bank on December 31, 2014.
(b) Prepare the entry, if any, to record the impairment of the loan on December 31, 2016, by Paris Bank.