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.

Question

Summer Dennis

Business

8 July, 01:58

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.

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Myla Harrington · 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.