PROBLEM: On January 1 of Year 1, Silver Company purchased a bond and classified it as held to maturity. The 5-year bond has a face value of $1,000,000, pays interest annually on December 31, and has a stated and effective interest rate of 5%. Silver receives the first two payments on December 31, Year 1 and Year 2, respectively. On December 31 of Year 2, Silver determines that the investment’s expected collections have dropped below the contractual amounts. Silver anticipates that the remaining three payments will be $45,000 instead of $50,000. Silver does anticipate that the principal balance will be received in full
On December 31, Year 3, Silver reassesses the investment and anticipates that the remaining two payments will be $48,000 each. Prepare the journal entry for the impairment loss and recovery on December 31 of Year 2 and Year 3.
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