On January 3, 2023, Prism purchased a high-risked 5-year debt instrument issued by Iffy Coat a sharp discount by paying $1,000,000 for an instrument that pays $1,500,000 on maturity. The effective interest rate was 5% per annum. The probability of default in the life of the debt was 20% on Jan. 3, 2020 but increased at Dec. 31, 2020, Prism's financial year-end. In the worse case scenario, only $10,000 is expected to be recovered. Ignore discounting. Prepare the journal entries for Prism or the year ended December 31, 2020.
On January 3, 2023, Prism purchased a high-risked 5-year debt instrument issued by Iffy Coat a sharp discount by paying $1,000,000 for an instrument that pays $1,500,000 on maturity. The effective interest rate was 5% per annum. The probability of default in the life of the debt was 20% on Jan. 3, 2020 but increased at Dec. 31, 2020, Prism's financial year-end. In the worse case scenario, only $10,000 is expected to be recovered. Ignore discounting. Prepare the journal entries for Prism or the year ended December 31, 2020.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On January 3, 2023, Prism purchased a high-risked 5-year debt instrument issued by Iffy Coat a sharp discount by paying $1,000,000 for an instrument that pays $1,500,000 on maturity. The effective interest rate was 5% per annum. The probability of default in the life of the debt was 20% on Jan. 3, 2020 but increased at Dec. 31, 2020, Prism's financial year-end. In the worse case scenario, only $10,000 is expected to be recovered. Ignore discounting.
Prepare the
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