Exercise 17-22 Date Account Titles and Explanation Debit Credit (Entry for inves
ID: 2545805 • Letter: E
Question
Exercise 17-22
Date
Account Titles and Explanation
Debit
Credit
(Entry for investments in Laser Company)
(Entry for of investments in FourSquare Company)
SHOW LIST OF ACCOUNTS
LINK TO TEXT
Date
Account Titles and Explanation
Debit
Credit
SHOW LIST OF ACCOUNTS
LINK TO TEXT
Date
Account Titles and Explanation
Debit
Credit
(Entry for investments in Laser Company)
(Entry for investments in FourSquare Company)
SHOW LIST OF ACCOUNTS
LINK TO TEXT
Account Titles and Explanation
Debit
Credit
Exercise 17-22
Pina Company has the following investments as of December 31, 2017:Investments in common stock of Laser Company $1,410,000 Investment in debt securities of FourSquare Company $3,270,000
In both investments, the carrying value and the fair value of these two investments are the same at December 31, 2017. Pina’s stock investments does not result in significant influence on the operations of Laser Company. Pina’s debt investment is considered held-to-maturity. At December 31, 2018, the shares in Laser Company are valued at $990,000; the debt investment securities of FourSquare are valued at $2,500,000. Assume that these investments are considered impaired.
Explanation / Answer
1. Though these investments are long term but investments are considered impaired as there is a permanent decline in their value.
a) 31st dec 2018 Loss on impairment a/c Dr 420,000
To Investment in Laser Company a/c Cr 420,000
(Being imapairment of investment in laser company is recorded.(1,410,000-990,000=420,000).
b) 31st dec 2018 Loss on impairment a/c Dr 420,000
To Investment in Foursquare Company a/c Cr 420,000
(Being imapairment of investment in Foursquare company is recorded.(3,270,000-2,500,000=770,000).
2. Assuming question 2 is continuation of question 1 as the entries of 2019 are asked.
31st dec 2019 Investment in Laser comapany a/c Dr 420,000
Investment in Foursquare company a/c Dr 420,000
To Loss on imapirment a/c Cr 840,000
(Being reversal of impaired loss as there is a increase in fair value)
For investment in Laser company = 1,410,000-990000 = 420,000
For investment in Foursquare company = 2,920,000-2,500,000= 420,000
Total impaired loss to be reversed = 840,000
A compound entry is made for two investment accounts. 2 seperate entries can also me made for the same.
3. As both the investments are long term and assuming the impairment is not permanent no entries are required.
For long term investments we won't record fluctuations everytime unless they are permanent in nature. either increase or a decrease.
4. Carrying value of investment in foursquare company (A) = 3,270,000
Loss will be incurred if sold (B) = 870,000
Market value of investment =(A-B) = 2,400,000
Therefore the debt investment is to be reduced to market value if impairment is to be considered (if permanent)
31 dec 2018 Loss on impairment a/c Dr 870,000
To investment in foursquare company a/c Cr 870,000
(Being permanent impairment in debt investement is recorded.)
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.