yayai Co. has a held-to-maturity investment in the bonds of Schuyler Corp. with a carrying value of $56,800. Ayayai determined that due to poor economic prospects for Schuyler, the bonds have decreased in value to $48,100. It is determined that this loss in value is uncollectible. Prepare the journal entry, if any, to record the reduction in value.

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Magnolia

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6 September, 13:13

yayai Co. has a held-to-maturity investment in the bonds of Schuyler Corp. with a carrying value of $56,800. Ayayai determined that due to poor economic prospects for Schuyler, the bonds have decreased in value to $48,100. It is determined that this loss in value is uncollectible. Prepare the journal entry, if any, to record the reduction in value.

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Kaufman · Answer 1

Dr Loss on impairment 8,700

Cr Debt investment 8,700

Explanation:

Yayai didn't purchase Schuyler's bonds to trade them, they purchased them as a held-to-maturity investment, so they are reported in the Debt investments account which has a debit balance (asset account). Since it decreases in value, it should be debited.

The loss on impairment account reports decreases in the net carrying value of assets, such as debt investments.