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Intermediate Accounting: Reporting...
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Intermediate Accounting: Reporting...
Researching GAAP
Situation
Middleton Company has operated a successful retail business for many years that has generated significant amounts of excess cash. Middleton invests this excess cash in equity and debt securities and has appropriately classified all of its investments as held-to-maturity. As Middleton prepares its financial statements for the current fiscal year, its auditors have questioned whether any of the investments are impaired. Middleton had never considered this issue before and needs guidance as to how to test these securities for impairment.
Directions
Research the related generally accepted accounting principles and prepare a short memo to Middleton that provides guidance as to how held-to-maturity investment securities should be evaluated for impairment.
Write a memo to Company M by researching the generally accepted accounting principle which provides guidance for evaluating the impairment.
Memo
From,
ABC
To,
Company M
Sub: Results of the research that has been carried for evaluating the impairment.
According to FASB ASC 326-10, the management should improve an estimate of expected credit losses that are held-to-maturity investments. During each reporting date, the management must record an allowance for the credit losses. These credit losses is a valuation account which is deducted from the amortized cost basis of the investment for presenting the total net amount that is expected to be collected.
According to FASB ASC 326-20-30-1, the amounts that are needed to adjust any allowance must be reported on the income statement as the “credit loss expense”...
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