Question

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.

Answer 1

Explanation:

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)