Question

Metlock Company has the following investments as of December 31, 2017: Investments in common stock of Laser Company $1,500,000 Investment in debt securities of FourSquare Company $3,140,000 In both investments, the carrying value and the fair value of these two investments are the same at December 31, 2017. Metlock’s stock investments does not result in significant influence on the operations of Laser Company. Metlock’s debt investment is considered held-to-maturity. At December 31, 2018, the shares in Laser Company are valued at $1,010,000; the debt investment securities of FourSquare are valued at $2,410,000. Assume that these investments are considered impaired. a)Prepare the journal entries for these two securities at December 31, 2018, assuming that they are permanently impaired b)Assuming the fair value of the Laser shares is $1,500,000 and the value of its debt investment is $2,900,000, what entries, if any, should be recorded in 2019 related to impairment? c)Prepare the journal entries at December 31, 2018, assuming these securities are not permanently impaired. (Ignore interest revenue entries. d)Assume that the debt investment in FourSquare Company was available-for-sale and the expected credit loss was $820,000. Prepare the journal entry to record this impairment on December 31, 2018.
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Answer 1

Prepar the journal entry to record the impairment of these security on 31 December 18

Loss on investment in laser company a/c dr $490000

To investment in laser company. $490000

(Record impairment loss in investment in laser company)

Loss on investment securities in foursquare co. $730000

To investment in Foursquare company. $730000

(Record impairment loss in investment in debt securities )

2.

1. Impairment loss in laser company common stock is not record because cost of investment of common stock is equal to fair value of common stock.

2. Loss on investment securities Foursquare co $240000

To investment in debt securities in Foursquare co. $240000

( record impairment loss on debt securities in Foursquare company)

C. If a bussiness has invested in debt and equity securities that it classified held to maturity then these investment at their at their amortization cost .at indicate by the name held to maturity securities is an entity has the ability abd intention to held units till maturity date . So there is no point in adjustment in the accounting record prior to the maturity date .

D. Loss on available for securities a/c dr. $820000

To available-for-sale investment. $820000