Bloom Corporation purchased $1,000,000 of Taylor Company 5% bonds at par and cla
ID: 2329711 • Letter: B
Question
Bloom Corporation purchased $1,000,000 of Taylor Company 5% bonds at par and classifies their investment as AFS. Unfortunately, a combination of problems at Taylor Company and in the debt market caused the fair value of the Taylor investment to decline to $600,000 during 2018. Consider each of the following as independent situation. Assume that Bloom Corporation used the AFS Credit Loss Model introduced in ASU 2016 -13 and required after 2020. Bloom now believes it is more likely than not that it will have to sell the Taylor bonds before the bonds have a chance to recover their fair value. Of the $400,000 decline in fair value, Bloom attributes $250,000 to credit losses, and $150,000 to noncredit losses. Bloom does not plan to sell the Taylor bonds prior to maturity, and does not believe it is more likely than not that it will have to sell the Taylor bonds before the bonds have a chance to recover their fair value. Of the $400,000 decline in fair value, Bloom attributes $250,000 to credit losses, and $150,000 to noncredit losses. Bloom had recorded a temporary unrealized loss (not an OTT impairment) of $100,000 on the Taylor investment. Required: 1. Prepare appropriate entry(s) at December 31, 2018, and for each year indicate how the scenario will affect net income, OCI, and comprehensive income. 2. Prepare appropriate entry(s) at December 31, 2018. Assume that, Bloom Corporation used the AFS Credit Loss Model introduced in ASU 2016-13 and required after 2020
Required 1 GJ
Required 1 Inc Stmt
Required 2
Prepare appropriate entry(s) at December 31, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Required 1 GJ
Required 1 Inc Stmt
Required 2
Indicate how the scenario will affect the 2018 income statement, OCI, and comprehensive income. (Amounts to be deducted should be indicated with a minus sign.)
Required 2
Prepare appropriate entry(s) at December 31, 2018. Assume that, Bloom Corporation used the AFS Credit Loss Model introduced in ASU 2016-13 and required after 2020. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
No Event General Journal Debit Credit 1 01 Other-than-temporary impairment loss—NIselected answer correct 400,000selected answer correct not attempted Investment revenueselected answer incorrect not attempted 400,000selected answer correctExplanation / Answer
Required 1
Required 2
No. Event General journal debit credit 1 a Other-than-temporary impairment loss— I/S 400000 Discount on Bonds Investment 400000 1 b Other-than-temporary impairment loss—I/S 250000 Discount on Bonds Investment 250000 1 b Other-than-temporary impairment loss—OCI 150000 Fair Value Adjustment 150000 1 c Net unrealized holding gains and losses - OCI 400000 Fair value adjustment 400000