Question

Pearl 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 Fair value Expected credit losses $51,400 42.800 12.750 What is the amount of the credit loss that Pearl should report on this available-for-sale security at December 31, 2020? Amount of the credit loss $ eTextbook and Media List of Accounts 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 for the amounts) Date Account Titles and Explanation Debit Credit December 31, 2020 e Textbook and Media List of Accounts Assume that the fair value of the available for sale security is $55,800 at December 31, 2020, instead of $42,800 What is the amount of the credit loss that Pearl should report at December 31, 2020 Amount of the credit loss S

Answer 1

AFS debt securities.
The new accounting standard also modifies today's accounting for impairment on AFS debt securities. Under this new standard, institutions will recognize a credit loss on an AFS debt security through an allowance for credit losses, rather than a direct write-down as is required by current U.S. GAAP. The recognized credit loss is limited to the amount by which the amortized cost of the security exceeds fair value. A write-down of an AFS debt security's amortized cost basis to fair value, with any incremental impairment reported in earnings, would be required only if the fair value of an AFS debt security is less than its amortized cost basis and either (1) the institution intends to sell the debt security, or (2) it is more likely than not that the institution will be required to sell the security before recovery of its amortized cost basis.

Sentin In the instant case, The amount of the credit loss that pearl Corspany should report on the available for sale ofs debt security at Dee, 31,2020 listed to f 8600/- Credit DV. 4 8600 Amo won of Corecir loss in the first year Credit less on AFS Debt Security (to read The Credit loss portion of total unrealised las). 48600 Allowance for Credit for credit lesson APS debt secret helso Other Cornprehensive Income. (to reard the non-credit lesy porimototap realised less) $4150 AFS debt&coin the increase in value in the secondyear. & 4400 8. 4400 AFS debt securit Allowance to view it bx) To Credit less onafs in the credit list second situation is & 4,200 Amount of