On December 31, 2016, 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 2017 Mohr began to experience financial difficulty. As a result, this was determined to be a significant increase in risk, and at December 31, 2017, Par Bank estimated that it was probable that it would receive only $93,750 at maturity. For simplicity, assume that this reflects the probability weighted amount. The market rate of interest on loans of this nature is now 11%. Both companies prepare financial statements in accordance with IFRS 9.
Instructions
(a) Prepare the entry to record the issuance of the loan by Par Bank on December 31, 2016.
(b) Using time value of money tables, a financial calculator, and computer spreadsheet functions, prepare the entry (if any) to record the impairment of the loan on December 31, 2017 by Par Bank.
(c) Prepare the entry (if any) to record the existence of financial difficulty on December 31, 2017 by Mohr.