Market rate of interest on loans of this nature

Reference no: EM131051201

On December 31, 2014, Firth Company borrowed $62,092 from Paris Bank, signing a 5-year, $100,000 zero-interest-rate note. The note was issued to yield 10% interest. Unfortunately, during 2016, Firth began to experience financial difficulty. As a result, at December 31, 2016, Paris Bank determined that it was probable that it would collect only $75,000 at maturity. The market rate of interest on loans of this nature is now 11%.

Instructions

(a) Prepare the entry (if any) to record the impairment of the loan on December 31, 2016, by Paris Bank. (b) Prepare the entry on March 31, 2017, if Paris learns that Firth will be able to repay the loan under the original terms.

Reference no: EM131051201

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