Question

On January 10, Year 1, Wayne, Inc., purchased 5,000 of Jason bonds at $60 par per bond. The purchase is a long-term investment and is appropriately reflected in Wayne's balance sheet in an available-for-sale securities portfolio at December 31, Year 1. The fair value of Wayne's investment in Jason's bonds are as follows: Fair value Date Per bond Total December 15, Year 1 $47 $235,000 December 31, Year 1 46 230,000 On December 15, Year 1, Wayne determined that the decline in the fair value was attributed to credit loss. What amount should Wayne record as a loss in its income statement for the year ended December 31, Year 1?

Answer 1

Answer:

$70,000 loss

Explanation:

the carrying value at December 31, Year 1 = 5,000 shares x $60 per share = $300,000

the fair market value at December 31, Year 1 = 5,000 shares x $46 per share = $230,000

realized loss/gain = fair market value - carrying value = $230,000 - $300,000 = -$70,000 or $70,000 loss