Financial Instruments – Other-Than-Temporary Impairment

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Joseph Won ACCT 351 Research Case 2 February 11, 2015 Financial Instruments – Other-Than-Temporary Impairment 1. For the following investments, determine if OTT should record an other-than-temporary impairment as of December 31, 20X1, and if so, for what amount: • Happy New Year & Co. * Since the fair value of investment is less than its cost, the Company should proceed to step 2 for identifying and accounting for impairment. However, there is no indication that OTT does not expect the fair value of the security to fully recover before the expected time of sale. The Company actually does not believe the decline in price to be permanent. In addition, it does not intend to sell this investment in the…show more content…
* It should be the entire difference between the investment’s cost and its fair value at the balance sheet date of the reporting period for which the assessment is made. So, the recorded amount is (100-72) * 50 = $1,400. (FASB 320-10-35-34) 3. Assume the same facts as in 2 above, but that OTT has not yet determined whether an impairment exists or the amount of any possible impairment. For March Madness Incorporated, would OTT still conclude that the investment is other-than-temporarily impaired, and would the impairment charge as of December 31, 20X1, be different if the stock price at issuance of the financial statements (i.e., as of January 31, 20X2) was $95 and not $75? * Unless it is clear that the impairment is deemed other than temporary, we cannot conclude that the investment is other-than-temporarily impaired. For the second part of the question, the charge will not be different because it depends on the fair value at the balance sheet date, not the issuance date. (FASB 320-10-35-33 and 34) 4. For Tohoku Toys, determine if OTT should record an other-than-temporary impairment as of December 31, 20X1. * OTT does not believe that the restructuring will ultimately be successful. So, an other-than-temporary impairment should be considered to have occurred if the Company intends to sell them or not. (FASB 320-10-35-33C) 5. For Chatterbox, what amount should be recorded as the other-than-temporary
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