Question

1. Presented below are two independent cases related to available-for-sale debt investments.

		Case 1		Case 2
Amortized cost		$41,640		$91,800
Fair value		32,220		102,220
Expected credit losses		27,360		83,660

For each case, determine the amount of impairment loss, if any. (If no loss, please enter 0. Do not leave any fields blank.)

Case 1
Impairment Loss		$

Case 2
Impairment Loss		$

2. Sage Company purchased, on January 1, 2017, as a held-to-maturity investment, $66,000 of the 8%, 5-year bonds of Chester Corporation for $60,996, which provides an 10% return.

Prepare Sage’s journal entries for (a) the purchase of the investment, and (b) the receipt of annual interest and discount amortization. Assume effective-interest amortization is used. (Round answers to 0 decimal places, e.g. 1,225. 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 0 for the amounts.)

No.	Account Titles and Explanation	Debit	Credit
(a)
(b)

Answer 1

Answer :

1)

Decrease in market value compared to book value leads to impairment loss

Case 1:

Impairment loss = Amortized cost - Higher of (Face value and Expected losses)
= $41,640 - $32,220
= $9,420

Case 2:

In case 2 the fair value > Cost, so there is no impairment loss .

2) journal entries

Date	Account title	Debit	Credit
a	held to maturity securities investment	60,996
	Cash		60,996
b	cash (66,000 × 8%)	5,280
	Held to maturity securities investment	820
	Interest revenue (60,996× 10%)		6,100