On December 31, 2010, Mohr Inc. borrowed $81,241 from Par Bank, signing a $125,000, five- year, non–interest-bearing note. The note was issued to yield 9% interest. Unfortunately, during 2011 Mohr began to experience financial difficulty. As a result, at December 31, 2011, Par Bank determined that it was probable that it would receive only $93,750 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 Par Bank on December 31, 2010.
(b) Prepare the entry (if any) to record the impairment of the loan on December 31, 2011, by Par Bank.
(c) Prepare the entry (if any) to record the impairment of the loan on December 31, 2011, by Mohr.