Question

cost of $800,000, and a fair value of $720,000. The company believes that impairment accounting is now E17.18 (LO 4) (Impairment of Debt Securities) Hagar Corporation has municipal bonds classi- fied as a held-to-maturity at December 31, 2020. These bonds have a par value of $800,000, an amortized b. What is the new cost basis of the municipal bonds? Given that the maturity value of the bonds is $800,000, should Hagar Corporation amortize the difference between the carrying amount and the the purchase and any ad pany in 2020. appropriate for these bonds. Instructions a. Prepare the journal entry to recognize the impairment. maturity value over the life of the bonds? c. At December 31, 2021, the fair value of the municipal bonds is $760,000. Prepare the entry (if any) to record this information. thanuvchases

Answer 1

(a)

Allowance For Doubtful Accounts
($800,000 – $720,000) .......................................... 80,000
Debt Investments ............................................ 80,000

(b)

The new cost basis is $720,000. 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 the asset back up to its original maturity value for held-to-maturity debt investments.

(c)

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