Question

Exercise 12-3 Bloom Corporation purchased $1,900,000 of Taylor Company 5% bonds at par and classifies their investment as AFS, Unfortunately, a combination of problems at Taylor Company and in the debt market caused the fair value of the Taylor investment to decline to $1,320,000 during 2018. Consider each of the following as 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 $580,000 decline in fair value, Bloom attributes $340,000 to credit losses, and $240,000 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 $580,000 decline in fair value, Bloom attributes $340,000 to credit losses, and $240,000 to noncredit losses Required: 1. Prepare appropriate entry(s) at December 31, 2018 and Indicate how the scenario will affect the 2018 income statement, OCI, and comprehensive income. 2. Prepare appropriate entry(s) at December 31, 2018. Assume that, at the end of 2017, Bloom had recorded a temporary unrealized loss (not an OTT impairment) of $145,000 on the Taylor investment es Complete this question by entering your answers in the tabs below. Required 1 GRequired 1 Inc Required 2 Stmt Indicate how the scenario will affect the 2018 income statement, OCI, and comprehensive income. (Amounts to be deducted should be indicated with a minus sign.) Scenario 2 Scenario 1 Effect Effect Income statement Other Comprehensive Income Net effect on comprehensive income Required 2> Required 1 GJ

Answer 1

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