Question

E17.23 (LO 4) (Impairment) Morley 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		$50,000
Fair value		40,000
Expected credit loss		12,000

a. What is the amount of the credit loss that Morley 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 $53,000 at December 31, 2020, instead of $40,000. What is the amount of the credit loss that Morley 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

ANS A) THE AMOUNT OF CREDIT LOSS THAT MORLEY SHOULD REPORT IO THIS AVAILABLE SALE DEBT SECURITY IS FAIR VALUE LESS AMORTIZED COST

$ 40000-$50000=$10000 LOSS

B)ANS. PROFIT AND LOSS A/C DR $10000

TO AMORTIZED ASSET $10000

C) ANS.IF FAIR VALUE OF AVAILABLE DEBT SECRITY IS $ 53000 INSTESD OF $40000

THE CREDIT LOSS IS NOTHING BUT CREDIT PROFIT SHOULD NOT BE RECORDED OF $3000

D) NO OURNAL ENTRY SHOULD BE PASSES FOR THE 3000 AS IT IS NOT REALISED BUT CREDIT LOSSES SHOLD BE RECORDED