Question

Crane 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 $50,600 Fair value 41,200 Expected credit losses 12,350

A) What is the amount of the credit loss that Crane should report on this available-for-sale security at December 31, 2020?

B) Prepare the journal entry to record the credit loss, if any (and any other adjustment needed), at December 31, 2020.

C) Assume that the fair value of the available-for-sale security is $54,200 at December 31, 2020, instead of $41,200. What is the amount of the credit loss that Crane should report at December 31, 2020?

D)Assume the same information as for part (c). Prepare the journal entry to record the credit loss, if necessary (and any other adjustment needed), at December 31, 2020.

Answer 1

	Answer
	Solution:-
A)	The amount of credit loss that, morley should report to this available sale debt security is fair value less amortized cost
	$41,200-$50,600 = $9,400
B)	Journal entry
	Profit and Loss A/c Dr.    $9,400
	To, Amortized Asset                  $9,400
C)	If fair value of available debt security is $ 54,200 instead of $41,200
	The credit loss is nothing but credit profit should not be recorded of $3,600
D)	There will be unrealized profit of $ 3,600, therefore, no journal entry for credit loss
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