LED Corporation owns $1,000,000 of Branch Pharmaceuticals bonds and classifies its investment as securities available-for-sale. The market price of Branch’s bonds fell by $450,000 due to concerns about one of the company’s principal drugs. The concerns were justified when the FDA banned the drug. $100,000 of that decline in value already had been included in OCI as a temporary unrealized loss in a prior period. LED views $200,000 of the $450,000 loss as related to credit losses, and the other $250,000 as noncredit losses. LED does not plan to sell the investment and does not think it is more likely than not that it will have to sell the investment before fair value recovers. What journal entries should LED record to account for the decline in market value in the current period? How should the decline affect net income and comprehensive income? General Journal What journal entries should LED record to account for the decline in market value in the current period? Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. No Transaction General Journal Debit Credit 1 1 Credit loss expense 200,000 Allowance for credit losses 20,0 00 2 2 Loss on investments (unrealized, OCI) 250,000-wrong Fair value adjustment 250,000 -wrong Effect How should the decline affect net income and comprehensive income? Note: Negative amounts should be entered with minus sign. Effect Net income $(200,000) Other comprehensive income $(250,000)-wrong Net effect on comprehensive income $(450,000)-wrong
LED Corporation owns $1,000,000 of Branch Pharmaceuticals bonds and classifies its investment as securities available-for-sale. The market price of Branch’s bonds fell by $450,000 due to concerns about one of the company’s principal drugs. The concerns were justified when the FDA banned the drug. $100,000 of that decline in value already had been included in OCI as a temporary unrealized loss in a prior period. LED views $200,000 of the $450,000 loss as related to credit losses, and the other $250,000 as noncredit losses. LED does not plan to sell the investment and does not think it is more likely than not that it will have to sell the investment before fair value recovers.
What journal entries should LED record to account for the decline in market value in the current period? How should the decline affect net income and comprehensive income?
- General Journal
What journal entries should LED record to account for the decline in market value in the current period?
Note: If no entry is required for a transaction/event, select "No
| No | Transaction | General Journal | Debit | Credit |
|---|---|---|---|---|
| 1 | 1 | Credit loss expense | 200,000 | |
| Allowance for credit losses | 20,0 00 | |||
| 2 | 2 | Loss on investments (unrealized, OCI) | 250,000-wrong | |
| Fair value adjustment | 250,000 -wrong |
- Effect
How should the decline affect net income and comprehensive income?
Note: Negative amounts should be entered with minus sign.
|
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
