In: Accounting
Sarasota Company has the following investments as of December
31, 2020:
Investments in common stock of Laser Company | $1,630,000 | |
Investment in debt securities of FourSquare Company | $3,240,000 |
In both investments, the carrying value and the fair value of these
two investments are the same at December 31, 2020. Sarasota’s stock
investments does not result in significant influence on the
operations of Laser Company. Sarasota’s debt investment is
considered held-to-maturity. At December 31, 2021, the shares in
Laser Company are valued at $1,200,000; the debt investment
securities of FourSquare are valued at $2,480,000 and are
considered impaired.
a. Prepare the journal entry to record the impairment of the debt securities at December 31, 2021
b. Assuming the fair value of the Laser shares is $1,470,000 and the value of its debt investment is $2,970,000, what entries, if any, should be recorded in 2022 related to impairment?
c. Assume that the debt investment in FourSquare Company was available-for-sale and the expected credit loss was $860,000. Prepare the journal entry to record this impairment on December 31, 2021.
a. Prepare the journal entry to record the impairment of the debt securities at December 31, 2021
Account And Explanation |
Debit |
Credit |
Loss on impairment (3240000 - 2480000) |
$760000 |
|
Debt investment |
$760000 |
|
(To record impairment on debt ) |
b. Assuming the fair value of the Laser shares is $1,470,000 and the value of its debt investment is $2,970,000, what entries, if any, should be recorded in 2022 related to impairment?
No entry,
Because there is no impairment
The book value on this date
Investments in common stock of Laser Company |
$1200000 |
Investment in debt securities of FourSquare Company |
$2480000 |
* For held to maturity securities, impairment gain is not record.
c. Assume that the debt investment in FourSquare Company was available-for-sale and the expected credit loss was $860,000. Prepare the journal entry to record this impairment on December 31, 2021.
Account And Explanation |
Debit |
Credit |
Loss on impairment |
$860000 |
|
Allowance for Impaired Debt investment |
$86000 |
|
(To record expected impairment on debt ) |