Question

Assume that Toni Braxton Company has recently fallen into financial difficulties. By reviewing all available evidence on December 31, 2017, one of Toni Braxton’s creditors, the National American Bank, determined that Toni Braxton would pay back only 65% of the principal at maturity. As a result, the bank decided that the loan was impaired. If the loss is estimated to be $225,000, what entry(ies) should National American Bank make to record this loss?

Short answer

Theloss will be recorded as bad debt expenses.

Step-by-step solution

Definition of Maturity

Maturity can be defined as the specified time on which the amount due as a loan and any accrued interest is to be repaid.

Journal Entries to Record Loss

Date	Accounts and Explanation	Debit $	Credit $
	Bad debt expenses	$225,000
	Allowance for doubtful accounts		$225,000