Question

Crane Company has the following investments as of December 31, 2020:

Investments in common stock of Laser Company		$1,540,000
Investment in debt securities of FourSquare Company		$3,590,000

In both investments, the carrying value and the fair value of these two investments are the same at December 31, 2020. Crane’s stock investments does not result in significant influence on the operations of Laser Company. Crane’s debt investment is considered held-to-maturity. At December 31, 2021, the shares in Laser Company are valued at $1,120,000; the debt investment securities of FourSquare are valued at $2,740,000 and are considered impaired.

A.Prepare the journal entry to record the impairment of the debt securities at December 31, 2021.

B. Prepare the journal entry to record the impairment of the debt securities at December 31, 2021.

C.Assume that the debt investment in FourSquare Company was available-for-sale and the expected credit loss was $950,000. Prepare the journal entry to record this impairment on December 31, 2021.

Answer 1

A. Dec.31,2021

Allowance for Doubtful Accounts                850,00

        Unrealized Holding Gain Or loss- Income            850,00

Allowance for Doubtful Accounts

=

($3,590,000 - $2,740,000)

=

850,000

B.

Dec.31,2022

Fair Value Adjustment                                320,000

UNrealized Holding Gain or Loss- Income            320,000

Fair Value Adjustment ($1,440,000 – $1,120,000) = $320,000

C.

Bad Debt Expense                                    850,000

        Allowance for Doubtful Account                850,000

Bad Debt Expense

=

($3,590,000 - $2,740,000)

=

850,000