LED Corporation owns $1,000,000 of Branch Pharmaceuticals bonds and classifies its investment as securitiesavailable-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 invalue already had been included in OCI as a temporary unrealized loss in a prior period. LED views $200,000of the $450,000 loss as related to credit losses, and the other $250,000 as noncredit losses. LED does not plan tosell the investment and does not think it is more likely than not that it will have to sell the investment before fairvalue recovers. What journal entries should LED record to account for the decline in market value in the currentperiod? How should the decline affect net income and comprehensive income?
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
period? How should the decline affect net income and comprehensive income?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
