Marching Company holds a debt investment at amortized cost o

Marching Company holds a debt investment at amortized cost of $130,000. At December 31, 2014, the fair value of the investment (the current market price) is $84,000 and the present value of the future cash flows from the debt investment is $92,600. Marching did not intend to sell the investment, but it now deems it more likely than not that it will have to sell it before the market recovers. Does an impairment exist? If so, is it other than temporary? What amount of loss, if any, will Marching report in net income if the loss is other than temporary? What amount of loss will Marching report in other comprehensive income? Prepare the journal entry for the impairment loss, if needed. Does an impairment exist? If so, is it other than temporary? (If impairment does not exist, leave the second column blank.) Impairment exist? Other than temporary? What amount of loss, if any, will Marching report in net income if the loss is other than temporary? What amount of loss will Marching report in other comprehensive income? (Enter \"O\" for any zero amounts.) Marching will report $ Prepare the journal entry for the impairment loss, if needed. (Record debits first, then credits. Exclude explanations from any journal entries. If no entry is required, select \"No entry required\" in in net income and it will report S in other comprehensive income. the first cell in the \"Accounts\" column and leave all other cells blank.) Account December 31, current year

Solution

If the company intends to sell the security or if it is more likely than not that it will have to sell it before the market recovers, an other than temporary impairment will be recognized amounting to difference between amortized cost of debt security and its fair value.

In the given case, it is more likely than not that it will have to sell debt security before the market recovers, therefore the impairment exist in this case and all the impairment is other than temporary.

Impairment = Amortized cost - Fair value = $130,000 - $84,000 = $46,000

Other than temporary = $46,000

Other than temporary impairment will be reported in the other comprehensive income

Matching will report $0 in net income and it will report $46,000 in other comprehensive income.

Journal Entry for impairment loss (Amount in $)

Date	Account titles	Debit	Credit
Dec 31	Loss on Impairment	46,000
	Debt investment		46,000
Dec 31	Unrealized gain/loss - Other Comprehensive Income	46,000
	Loss on Impairment		46,000