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16 December, 01:14

Hagar Corporation has municipal bonds classified as a held-to-maturity at December 31, 2017. These bonds have a par value of $800,000, an amortized cost of $800,000, and a fair value of $720,000. The company believes that impairment accounting is now appropriate for these bonds.

Required:

Prepare the journal entry to recognize the impairment.

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  1. 16 December, 01:35
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    The journal entries are as follows

    On December 31,2017

    Loss on impairment Dr $80,000

    To Debt investment - available for sale $80,000

    (Being the loss on impairment is recorded)

    It is computed below:

    = $800,000 - $720,000

    = $80,000

    On December 31, 2017

    Fair value adjustment - available for sale Dr $80,000

    To Unrealized holding gain or loss - equity $80,000

    (Being the fair value adjustment is recorded)
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