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24 February, 05:20

Whispering Corporation has municipal bonds classified as a held-to-maturity at December 31, 2020. These bonds have a par value of $792,000, an amortized cost of $792,000, and a fair value of $710,000. The company believes that impairment accounting is now appropriate for these bonds.

Prepare the journal entry to recognize the impairment.

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  1. 24 February, 05:31
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    The journal entry to recognize the impairment:

    Impairment expense $ 82,000 (debit)

    Accumulated Impairment - Bonds $ 82,000 (credit)

    Explanation:

    Impairment of Bonds occurs when the Amortized Cost of the Bond exceeds the Fair value of the Bond.

    Amortized Cost of the Bond is the Carrying amount of a bond effected for the interest and capital repayment

    Fair Value of Bond is the price that the bond can be traded at on the market at arms length

    Impairment Calculation:

    Amortized cost $792,000

    Less fair value of $710,000

    Amortized Cost $82,000
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