Question
In early December of 2018, Blue Corp. purchased $42,200 of Yellow Company bonds, which constitutes less than 3% of Yellow's outstanding debt. Blue accounts for the Yellow investment as available for sale. By December 31, 2018, the value of the Yellow investment had fallen to $31,100, and Blue recorded an unrealized holding loss. By December 31, 2019, the value of the Yellow investment had fallen to $16,100, and Blue determined that it is more likely than not that it will need to sell the bonds before their fair value recovers, so Blue recorded an OTT impairment. By December 31, 2020, fair value had recovered to $21,100 Required 1-a. Prepare appropriate entry(s) at December 31, 2018. 1-b. Indicate how the scenario will affect net income, OCI, and comprehensive income Complete this question by entering your answers in the tabs below Req 1A Req 1B 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.) View transaction list Journal entry worksheet Record the adjustment of unrealized holding gain and loss. Note: Enter debits before credits
Explanation / Answer
Part 1:
Entries at Dec, 2018:
On 1 Dec: Blue Corp Bonds $42,200
To Bank $42,200
On 31 Dec: Unrealized holding loss $11,100
To Blue Corp Bonds $11,100
Part 2:
Dec 2018: Net Income - No effect
OCI - loss of $ 11,100
Dec 2019: Net Income - No effect
OCI - further loss of $ 15,000 ($31,100- $16,100)
Dec 2020: Net Income - Loss of $21,100 ($31,100- $21,100)
OCI- Gain of $ 5,000 ($21,100- $ 16,100)