Impairments (AFS Credit Loss Model) (Appendix 12B)
• LO12-4, LO12-8
Answer BE 12-17 under the assumption that LED Corporation used the AFS Credit Loss Model introduced in ASU 2016-13 and required after 2020.
BE 12–17
Available-f or-sale securities and impairment (Appendix 12B)
• LO12-4, LO12-8
LED Corporation owns $1,000,000 of Branch Pharmaceuticals bonds and classifies its investment as securities available-forsale. The market price of Branch’s bonds fell by $450,000, due to concerns about one of the company’s principal drugs. The concerns were justified when the FDA banned the drug. $100,000 of that decline in value already had been included in OCI as a temporary unrealized loss in a prior period. LED views $200,000 of the $450,000 loss as related to credit losses, and the other $250,000 as noncredit losses. LED thinks it is more likely than not that it will have to sell the investment before fair value recovers. What
Want to see the full answer?
Check out a sample textbook solutionChapter 12 Solutions
INTERMEDIATE ACCOUNTING(LL)-W/2 ACCESS
- Sunland Corporation has an investment in corporate bonds classified as available-for-sale at December 31, 2025. These bonds have a par value of $466,000, an amortized cost of $466,000, and a fair value of $388,000. The company believes that impairment accounting is now appropriate for these bonds because the expected credit loss on the bonds is $93,000. (a) Prepare the journal entry to recognize the impairment. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List debit entry before credit entry.) Account Titles and Explanation Debit Creditarrow_forwardProblem 15-9 (AICPA Adapted) During 2021, Garr Company purchased marketable equity securities as a trading investment. For the year ended December 31, 2021, the entity recognized an unrealized loss of P200,000. There were no security transactions during 2022. The entity provided the following information on December 31, 2022: Market value Security A B Cost 2,450,000 1,800,000 4,250,000 2,300,000 (10000) 900.000 2,700,000 5,000,000 In the 2022 income statement, what amount should be reported as unrealized gain or loss? a. Unrealized gain of P950,000 b. Unrealized loss of P950,000 c. Unrealized loss of P750,000 Unrealized gain of P750,000 d.arrow_forwardAs of 12/31/24, XYZ Inc. had available -for-sale debt investments with a fair value of $510,000, an amortized cost of $525,000, and a credit balance in the Fair Value Adjustment - Available for Sale Debt Investments account of $7,500. What is the amount of gain or loss reported by XYZ related to these available - for-sale debt investments and how should it be reported? O A. Unrealized Loss of $22,500, reported as part of Net Income. O B. Unrealized Loss of $22,500, reported as part of Other Comprehensive Income. OC. Unrealized Loss of $7,500, reported as part of Net Income. O D. Unrealized Loss of $7,500 reported as part of Other Comprehensive Income.arrow_forward
- 11. Adam Corporation purchased debt securities during 2021 and classified them as securities available for sale. As a result, how much gain will be reported by Adam Corporation in the December 31, 2021, income statem ent relative to the portfolio? Security Cost Fair Value 12/31/2021 A 45,500 50,100 84,000 33,200 В 77,000 44,500 a) $0 b) $8,900 c) $15,900 d) None of the abovearrow_forward18. An entity, with an investment in debt securities carried as FVOCI, deemed its original business model as not applicable starting November 30, 2020, and decided to reclassify its investment as FVPL. Which of the following statements is true?[ * The reclassification shall be made on November 30, 2020; the investment is O transferred at fair value from FVOCI to FVPL; the cumulative gain or loss previously recognized in OCl is transferred to retained earnings The reclassification shall be made on January 1, 2021; the investment is transferred at fair value from FVOCI to FVPL; the cumulative gain or loss previously nsferred to profit or loss recognized in OCI is The reclassification shall be made on January 1, 2021; the investment is O transferred at fair value from FVOCI to FVPL; the cumulative gain or loss previously recognized in OCI is transferred to retained earnings The reclassification shall be made on November 30, 2020; the investment is O transferred at fair value from FVOCI to…arrow_forwardAn entity, with an investment in debt securities carried as FVOCI, deemed its original business model as not applicable starting November 30, 2020, and decided to reclassify its investment as FVPL. Which of the following statements is true? A. The reclassification shall be made on November 30, 2020; the investment is transferred at fair value from FVOCI to FVPL; the cumulative gain or loss previously recognized in OCI is transferred to profit or loss B. The reclassification shall be made on January 1, 2021; the investment is transferred at fair value from FVOCI to FVPL; the cumulative gain or loss previously recognized in OCI is transferred to profit or loss C. The reclassification shall be made on January 1, 2021; the investment is transferred at fair value from FVOCI to FVPL; the cumulative gain or loss previously recognized in OCI is transferred to retained earnings D. The reclassification shall be made on November 30, 2020; the…arrow_forward
- Problem 15-8 (AICPA Adapted) During 2019, Haggard Company purchased marketable equity. securities for P1,850,000 to be held as trading investments. In 2019, the entity appropriately reported an unrealized loss of P200,000 in the income statement. There was no change during 2019 in the composition of the portfolio of trading securities. Pertinent data on December 31, 2020 are: Security Cost Market value A B 600,000 450,000 800,000 700,000 400,000 900,000 What amount of unrealized gain on these securities should be included in the 2020 income statement? 350,000 150,000 550,000 d. с.arrow_forwardExample 2) Fair value through profit or loss: Debt investment ABC Co. had the following transactions pertaining its trading investments: Feb. 1, 2021 Purchased $200,000 of 3-year, 6% bonds at 104. Interest is payable on each August 1 and February 1. Aug. 1, 2021 Received interest on the bonds. Dec. 31, 2021 The fair value of the bonds was 100. Instruction: Record the above transactions, using the fair value through profit or loss model. Also, prepare any required adjusting entry/entries at December 31, 2021. ABC Co. has a December 31 year-end.arrow_forward. At December 31, 2021, Crane Corporation had the following debt securities that were purchased during 2021, its first year of operation: Cost FairValue UnrealizedGain (Loss) Trading Securities: Security A $90000 $ 66000 $(24000) B 16000 21000 5000 Totals $106000 $87000 $(19000) Available-for-Sale Securities: Security Y $80000 $90000 $10000 Z 95000 63000 (32000) Totals $175000 $153000 $(22000) All market declines are considered temporary. Fair value adjustments at December 31, 2021 should be established with a corresponding charge against Multiple choice Income Stockholders’ Equity $19000 $ 0 $22000 $ 0 $19000 $42000 $19000 $22000arrow_forward
- E17.22 (L04) HIT (Impairment) Komissarov SA has a debt investment in the bonds issued by Keune AG The bonds were purchased at par for € 400,000 and, at the end of 2019, have a remaining life of 3 years with annual interest payments at 10%, paid at the end of each year. This debt investment is classified as held-for-collection. Keune is facing a tough economic environment and informs its investors that it will be unable to make all payments according to the contractual terms. The con troller of Komissarov has prepared the following revised expected cash flow forecast for this bond investment. Dec. 31 Expected Cash Flows 2020 € 35,000 2021 35,000 2022 385,000 total cash flow € 455,000 Instructions a. Determine the impairment loss for Komissarov at December 31, 2019. b. Prepare the entry to record the impairment loss for Komissarov at December 31, 2019. c. On January 15, 2020, Keune receives a…arrow_forward4 Required information. [The following information applies to the questions displayed below.] On December 31, Reggit Company held the following short-term investments in its portfolio of available-for-sale debt securities. Reggit had no short-term investments in its prior accounting periods. Available-for-Sale Securities Verrizano Corporation bonds Preble Corporation notes Lucerne Company bonds Cost $ 68,000 49,000 64,000 Prepare the December 31 adjusting entry to report these investments at fair value. General Journal Fair Value $ 66,640 43,610 61,440 Complete this question by entering your answers in the tabs below. Fair Value Adjustment Computation of fair value adjustment.arrow_forwardP17.4 (LO 1) (Debt Investments) amortization schedule with related fair values provided. These bonds are classified as available-for-sale. Presented below is information taken from a bond investment 12/31/20 12/31/21 12/31/22 Amortized cost $491,150 $519,442 $550,000 Fair value 497,000 509,000 550,000 Instructions a. Indicate whether the bonds were purchased at a discount or at a premium. b. Prepare the adjusting entry to record the bonds at fair value at December 31, 2020. The Fair Value Adjustment account has a debit balance of $1,000 prior to adjustment. c. Prepare the adjusting entry to record the bonds at fair value at December 31, 2021.arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education