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In this scenario, the system applies full unit reduction as a decrease in quantity and do not there is no impact to the remaining amount of deferred market discount.
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As there is sufficient unamortized discount and deferred market discount to absorb the loss factor, there is no impact on cost and no ledger entries for the loss factor amounts. The amount of deferred market discount has been reduced, but because the amount has not been posted to income, there is no adjustment from an accounting perspective other than to reduce the amount of deferred available for realization as the proceeds portion of the paydown is processed.
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Loss factor is processed first which increases the quantity by 10,000 and reverses the total prior loss of 5,000. It then The system then increases the deferred market discount by the remaining 5,000 of the recovery amount, reducing the amount of deferred market discount available for future recoveries to 10,000.
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The system then process the proceeds payment of 25,000 which now will record the 5,000 deferred market discount which was just restored from the loss recovery and then reduce the remaining 20,000 at par.
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Units | Cost | Def Market Discount | Mkt Dis |
952,000 | 952,000 | 0 | 0 |
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Prior Cost Reduction | Prior Def Mkt Discount Reduction |
0 | 10,000 |