Concept explainers
1.
Investment: The act of allocating money to buy a monetary asset, in order to generate wealth in the future is referred to as investment.
Held-to-maturity security: The debt securities which are held by the investor with intent to hold the investment till its maturity, are referred to as held-to-maturity securities.
Other-than-temporary (OTT) impairment: When the market value of an investment declines to a value lower than its cost, it is referred to as OTT impairment.
Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.
Rules of Debit and Credit:
Following rules are followed for debiting and crediting different accounts while they occur in business transactions:
- Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
- Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.
To Indicate: The effect of the following scenarios on the 2018 Income Statement of Company B.
2.
To Indicate: The effect of the following scenarios on the 2018 Income Statement of Company B.
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GEN COMBO LOOSELEAF INTERMEDIATE ACCOUNTING; CONNECT ACCESS CARD
- This is a variation of E 12–1 focusing on available-for-sale securities.]Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July1, 2018. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF paid $200million for the bonds. The company will receive interest semiannually on June 30 and December 31. Companymanagement has classified the bonds as available-for-sale investments. As a result of changing market conditions,the fair value of the bonds at December 31, 2018, was $210 million.Required:1. Prepare the journal entry to record Tanner-UNF’s investment in the bonds on July 1, 2018.2. Prepare the journal entries by Tanner-UNF to record interest on December 31, 2018, at the effective (market)rate.arrow_forwardIvanhoe Company purchased $324000 of bonds for $339000. If Ivanhoe intends to hold the securities to maturity, the entry to record the investment includes O a debit to Debt Investments at $324000. O a credit to Premium on Debt Investments of $15,000. O a debit to Debt Investments at $339000. O none of these choices are correct.arrow_forward6 Landis Co. purchased P500,000 of 8%, 5-year bonds (DI@FVTOCI) from Ritter, Inc. on January 1, 2022, with interest payable on July 1 and January 1. The bonds sold for P520,790 at an effective interest rate of 7%. Using the effective-interest method, Landis Co. decreased the Debt Investments account for the Ritter, Inc. bonds on July 1, 2022 and December 31, 2022 by the amortized premiums of P1,770 and P1,830, respectively. At December 31, 2022, the fair value of the Ritter, Inc. bonds was P530,000. At April 1, 2023, Landis Co. sold the Ritter bonds for P515,000. After accruing for interest, the carrying value of the Ritter bonds on April 1, 2023 was P516,875. What should Landis Co. report as a gain (or loss) on the bonds?arrow_forward
- 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_forward11. 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_forwardThis is a variation of E 12–2 focusing on trading securities.]Mills Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2018.Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate(yield) was 4% for bonds of similar risk and maturity. Mills paid $280 million for the bonds. The company willreceive interest semiannually on June 30 and December 31. As a result of changing market conditions, the fairvalue of the bonds at December 31, 2018, was $270 million.Required:1. Prepare the journal entry to record Mills’ investment in the bonds on July 1, 2018.2. Prepare the journal entries by Mills to record interest on December 31, 2018, at the effective (market) rate.arrow_forward
- Problem 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_forwardLED Corporation owns $1,000,000 of Branch Pharmaceuticals bonds and classifies its investment as securities available-for-sale. The market price of Branch’s bonds fell by $456,000 due to concerns about one of the company’s principal drugs. The concerns were justified when the FDA banned the drug. $102,000 of that decline in value already had been included in OCI as a temporary unrealized loss in a prior period. LED views $202,000 of the $456,000 loss as related to credit losses, and the other $254,000 as noncredit losses. LED thinks it is more likely than not that it will have to sell the investment before fair value recovers. What journal entries should LED record to account for any credit or noncredit losses in the current period? How should the decline affect net income and comprehensive income?arrow_forwardRell Corporation reports under IFRS No. 9. Rell has an investment in Tirish, Inc. bonds that Rell accounts for atamortized cost, given that the bonds pay only interest and principal and Rell’s business purpose is to hold the bondsto maturity. Rell purchased the bonds for €10,000,000. As of December 31, 2018, Rell calculates €750,000 ofcredit losses expected for default events occurring during 2019 and €450,000 of credit losses expected for defaultevents occurring after 2019. Required:1. Assume the Tirish bonds have not had a significant increase in credit risk. Prepare the journal entry to recordany impairment loss as of December 31, 2018.2. Assume the Tirish bonds have had a significant increase in credit risk. Prepare the journal entry to record anyimpairment loss as of December 31, 2018.3. Assume the Tirish bonds have not had a significant increase in credit risk, and that as of December 31, 2019,Rell calculates €650,000 of credit losses expected for default events occurring during…arrow_forward
- Sheridan Company in its first year of operations provides the following information related to one of its available-for-sale debt securities at December 31, 2025. Amortized cost Fair value Expected credit loss (a) $50,800 41,600 12.450 Your answer is correct. What is the amount of the credit loss that Sheridan should report on this available-for-sale security at December 31, 2025? (Do not leave any answer field blank. Enter O for amounts.) Amount of the credit loss. $ 9200arrow_forwardE17.22 (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_forwardCompany A estimated that it will receive less interest payments and principal payments from its Available-for-Sale investments in Company B’s bonds. Company A does not intend to sell the bonds before they will recover. See the information below: Amortized cost of Company B bonds: $800,000. Discounted value of estimated payments at the interest rate on the date of bond inception: $650,000. Fair value of Company B bonds: $400,000. How will Company A record this assessment? a. Company A will debit Credit Loss Expense by $150,000. b. Company A will debit loss on impairment by $400,000. c. Company A will credit Investment account by $800,000. d. Company A will not record this assessment given that the investment is AFS. e. Company A will debit Credit Loss Expense by $400,000.arrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning