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Oriole Corporation has municipal bonds classified as a held-to-maturity at December 31, 2020. These bonds have...

Oriole Corporation has municipal bonds classified as a held-to-maturity at December 31, 2020. These bonds have a par value of $766,000, an amortized cost of $766,000, and a fair value of $688,000. The company believes that impairment accounting is now appropriate for these bonds.

Prepare the journal entry to recognize the impairment

What is the new cost basis of the municipal bonds?

Given that the maturity value of the bonds is $766,000, should Oriole Corporation amortize the difference between the carrying amount and the maturity value over the life of the bonds?

At December 31, 2021, the fair value of the municipal bonds is $724,000. Prepare the entry (if any) to record this information.

Solutions

Expert Solution

(a) -- Prepare the journal entry to recognize the impairment.

Answer -

General Journal Debit ($) Credit ($)

Loss on Impairment [$766000 - $688000]

Debt Investments

78000

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-

78000

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(b) -- What is the new cost basis of the municipal bonds?

Answer -

New cost basis of the municipal bonds = $688000 [that is the fair value of bonds].

.

(c) -- Given that the maturity value of the bonds is $766000, should Oriole Corporation amortize the difference between the carrying amount and the maturity value over the life of the bonds?

Answer -

No, Oriole Corporation should not amortize the difference.

.

(d) -- At December 31, 2021, the fair value of the municipal bonds is $724000. Prepare the entry (if any) to record this information.

Answer -

General Journal Debit ($) Credit ($)

No Entry

No Entry

Note - No entry needed as held-to-maturity investments are not adjusted for fair value increases.

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ekkarill92 answered 1 year ago
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