Brief Exercise 9-20

Assume that Gush Inc. invests in a bond for $55,000. The bond was purchased at par and is accounted for using amortized cost. At year end, management has determined that there is no significant increase in credit risk, but that there is a 1% chance that the company will not collect 20% of the face value of the bond (which also represents the present value of the bond) in the next 12 months. The expected loss model is used.

Prepare the required year-end journal entry.