Question

Oriole Corporation has municipal bonds classified as a held-to-maturity at December 31, 2017. These bonds have a par value of $826,000, an amortized cost of $826,000, and a fair value of $754,000. The company believes that impairment accounting is now appropriate for these bonds. Prepare the journal entry to recognize the impairment. (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 o for the amounts.) Account Titles and Explanation Debit Credit (To record the impairment.) SHOW LIST OF ACCOUNTS LINK TO TEXT What is the new cost basis of the municipal bonds? New cost basis of the municipal bonds Given that the maturity value of the bonds is $826,000, should Oriole Corporation amortize the difference between the carrying amount and the maturity value over the life of the bonds? At December 31, 2018, the fair value of the municipal bonds is $790,000. Prepare the entry (if any) to record this information. (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 o for the amounts.) Account Titles and Explanation Debit Credit

Answer 1

ANSWER

1) Journal entries to recognize impairment

Date	Account Title and Explanation	Debit	Credit
Dec, 31 2017	Loss on impairment	72,000
	To debit investments		72,000
	[To record impairment]

Calculation ; Loss on Impairment = 826,000 - 754,000 = 72,000

2)

The new cost basis is $ 754,000 .

GAAP indicates that the difference between the carrying amount and the maturity value should not be recorded . If the bonds are impaired, it is inappropriate to increase(amortize) the assets back up to its original maturity value

3)

Unrealized holding gain on equity ($790,000 - $754,000 ) is $36,000

NO Entry is required

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