On January 3, 2020, FIN Company invested in a 7% bond with a principal amount of $600,000 issued by Z Company at a discount for $560,000 which would mature on December 31, 2024. The effective interest rate on the bond was 8.7%. In the worst case scenario of a default event, Z Company is not expected to be able to pay interest in 2022, 2023, and 2024 and the principal payment due on December 31, 2024. On January 3, 2020, the credit quality of Z Company was good and the probability of default during the first 12 months to December 31, 2020, was 1.2%. The probability remained stable throughout the period. Ignore discounting. Required: What is the loss allowance at December 31, 2020?

Contractual cash flows per annum $ 42,000 Loss allowance as at Dec 31, 2020 S 504 X