Question

Flint Company in its first year of operations provides the following information related to one of its available-for-sale debt securities at December 31, 2020.

Amortized cost $51,500

Fair value 43,000

Expected credit losses 12,800

1) What is the amount of the credit loss that Flint should report on this available-for-sale security at December 31, 2020?

Amount of the credit loss $ _____________

2) Prepare the journal entry to record the credit loss, if any (and any other adjustment needed), at December 31, 2020.

3) Assume that the fair value of the available-for-sale security is $56,000 at December 31, 2020, instead of $43,000. What is the amount of the credit loss that Flint should report at December 31, 2020?

Amount of the credit loss $ ___________

4) Assume the same information as for part (c). Prepare the journal entry to record the credit loss, if necessary (and any other adjustment needed), at December 31, 2020.

Answer 1

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Part 1
Amortized Cost		$   51,500
Fair Value		$   43,000
Credit Loss		$     8,500
Part 2
Bad Debt Expense	$    8,500
Unrealized Holding gain or loss-Equity	$    4,300
Allowance for doubtful Accounts ($12,800-$8,500)		$     4,300
Fair value adjustment		$     8,500
Part 3
No Credit loss since Fair value is more than amortized cost.
Part 4
Fair value adjustment ($56,000-$51,500)	$    4,500
Unrealized Holding gain or loss-Equity		$     4,500