Assume that Gush Inc. invests in a bond for $55,000. The bond was purchased at par and

Question:

Assume that Gush Inc. invests in a bond for $55,000. The bond was purchased at par and is accounted for using amortized cost. At year end, management has determined that there is no significant increase in credit risk, but that there is a 1% chance that the company will not collect 20% of the of the bond (which also represents the present value of the bond) in the next 12 months. The expected loss model is used. Prepare the required year-end journal entries.
Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...