On 1 July 20X2, King Ltd. purchased $500,000 bonds of Princess Inc. at par. The bonds pay 6% interest annually on June30. The bonds mature on30June20X9. King has a June30year-end.At30June 20X3, King assessed that the credit risk of the Princess bonds had significantly increased and that the expected credit losses were estimated to be $22,000.

Required:

1. Prepare journal entries for fiscal 20X3 related to these bonds.

2. At 30 June 20X4, King assessed that the Princess bonds were now credit-impaired due to an adverse change in technology within Princess’s industry. The present value of the estimated future cash flows was $425,000. Prepare the journal entries for 20X4.

3. Given the facts in requirement 2, prepare the journal entry to recognize interest revenue for 20X5.