Question

Flint Co. has a held-to-maturity investment in the bonds of Schuyler Corp. with a carrying value of $76,700. Flint determined that due to poor economic prospects for Schuyler, the bonds have decreased in value to $65,000. It is determined that this loss in value is uncollectible.Prepare the journal entry, if any, to record the reduction in value.

Answer 1

The journal entry to record the reduction in value would be:

Account Title Debit Credit

Loss on Impairment 11,700

Debt Investments (Available-for-Sale) 11,700

$76,700 - $65,000 = 11,700

In this case, a loss has occurred and the individual security should be written down. If Flint Co. has already recognized an unrealized holding loss—equity, an additional entry is needed to reverse this amount as well as eliminate the fair value adjustment (available-for-sale) account.