Question

Stellar 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		$50,100
Fair value		40,200
Expected credit losses		12,100

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

Amount of the credit loss

$

Prepare the journal entry to record the credit loss, if any (and any other adjustment needed), at December 31, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
December 31, 2020	enter an account title to record the time value change on March 31, 2017	enter a debit amount	enter a credit amount
	enter an account title to record the change in intrinsic value on March 31, 2017	enter a credit amount	enter a credit amount

  

  

Assume that the fair value of the available-for-sale security is $53,200 at December 31, 2020, instead of $40,200. What is the amount of the credit loss that Stellar should report at December 31, 2020?

Amount of the credit loss

$enter a dollar amount of the Unrealized Holding gain or loss for the period January 2 to March 31, 2017

  

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. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
December 31, 2020	enter an account title to record the time value change on March 31, 2017	enter a debit amount	enter a credit amount
	enter an account title to record the change in intrinsic value on March 31, 2017	enter a credit amount	enter a credit amount

Answer 1

1. Available for sale securities are required to be reported at fair value.

Hence the difference between amortized cost and fair value is required to be transferred to other comprehensive income.

The amount of credit loss that Stellar Company should report on this available for sale security at 31-12-2020

Fair value	$40,200
Less: Amortized cost	$50,100
Amount of the credit loss (Unrealised Loss)	$9900

2. Journal entry

Date	Account Titles and Explanation	Debit	Credit
Dec 31,	Unrealized loss on available for sale securities	$9900
2020	Available for sale investment		$9900
	(entry to record the decline in the value of available for sale investment)

Note: Loss on Available for sale investment is recorded under other comprehensive income.

3.In this case fair value is greater than the amortized cost , hence the credit gain should be reported by Stellar Company

Fair value	$53200
Less: Amortized cost	$50,100
Amount of the credit gain (Unrealised gain)	$3100

4. Journal entry

Date	Account Titles and Explanation	Debit	Credit
Dec 31,	Available for sale investment	$3100
2020	Unrealized gain on available for sale securities		$3100
	(entry to record the decline in the value of available for sale investment)

Note: gain on Available for sale investment is recorded under other comprehensive income.

Note: There is no treatment for expected credit losses