On September 1, 2014, Myo Inc. sold goods to Khin Corporation, a new customer. Prior to shipment of the goods, Myo’s credit and collections department conducted a procedural credit check and determined that Khin is a high credit risk customer. As a result, Myo did not provide Khin with open credit by recording the sale as an account receivable; instead, Myo required Khin to provide a non–interest-bearing promissory note for $35,500 face value, to be repaid in one year. Khin has a credit rating that requires it to pay 11% interest on borrowed funds. Myo pays 10% interest on a loan recently obtained from its local bank. Myo has a December 31 year end.
Assume that on the note’s maturity date, Khin informs Myo that it is having cash flow problems and can only pay Myo 79% of the note’s face value. After extensive discussions with Khin’s management, Myo’s credit and collections department considers the remaining balance of the note uncollectible. Prepare the entry required on Myo’s books on the note’s maturity date