Question

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.

Answer 1

Answer:

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.

Answer 2

In this case, an impairment has occurred and the individual security should be written down. The new cost basis of the investment in debt securities is $48,100 and will not change unless additional impairment occurs. Dr. Allowance for doubtful account CR. Debt Investment