Question

Exercise 12-30 Held-to-maturity securities; impairments (Appendix 128) [LO12-2, 12-8] Bloom Corporation purchased $1.200,000 of Taylor Company 5% bonds at par with the intent and ability to hold the bonds until they matured in 2025, so Bloom Classifies their investment as HTM. Unfortunately, a combination of problems at Taylor Company and in the debt market caused the fair value of the Taylor investment to decline to $760,000 during 2018. Consider each of the following as an Independent situation 1. Bloom now believes it is more likely than not that it will have to sell the Taylor bonds before the bonds have a chance to recover their fair value of the $440,000 decline in fair value, Bloom attributes $270,000 to credit losses, and $170,000 to noncredit losses 2. Bloom does not plan to sell the Taylor bonds prior to maturity, and does not believe it is more likely than not that it will have to sell the Taylor bonds before the bonds have a chance to recover their fair value of the $440,000 decline in fair value, Bloom attributes $270,000 to credit losses, and $170,000 to noncredit losses. Required: [ignore income taxes.) Prepare appropriate entry(s) at December 31, 2018, and indicate how the scenano will affect the 2018 income statement

Answer 1

Event	General journal	debit	credit
1	Other-than-temporary impairment loss— NI	440000
	Discount on Bonds Investment		440000
2a	Other-than-temporary impairment loss—I/s	270000
	Discount on Bonds Investment		270000
2b	Other-than-temporary impairment loss—OCI	170000
	Fair Value Adjustment		170000

	Scenario 1 effect	Scenario 2 effect
income statement	(440,000)	(440,000)
Other comprehensive income	0	170000
Net effect on comprehensive income	(440000)	(270000)