Brief Exercise 12–19
LED does not intend to sell the investment, and it does not believe it is more
likely than not that it will have to sell the investment before fair value recovers, so
Fair value adjustment…………………………………… 100,000
Reclassification adjustment—OCI ……………… 100,000
LED still would have to include the entire $450,000 in the income statement
before backing out the $250,000 to leave a $200,000 reduction of earnings. The
Brief Exercise 12–20
Wickum would have recorded a journal entry previously that recognized the
OTT impairment in earnings and reduced the investment account:
Upon recovery of $300,000 of fair value, Wickum would reverse the
impairment by that amount:
Exercise 12–1
Requirement 1 ($ in millions)
Requirement 2
Requirement 3
Tanner-UNF reports its investment in the December 31, 2018, balance sheet
at its amortized cost—that is, its book value:
If sale before maturity isn’t an alternative, increases and decreases in the
market value between the time a debt security is acquired and the day it
EXERCISES
Requirement 4 ($ in millions)
Cash (proceeds from sale)………………………………… 190.0
Exercise 12–2
Requirement 1 ($ in millions)
Requirement 2
Requirement 3
Mills reports its investment in the December 31, 2018, balance sheet at its
amortized cost—that is, its book value:
If sale before maturity isn’t an alternative, increases and decreases in the
market value between the time a debt security is acquired and the day it
Requirement 4 ($ in millions)
Exercise 12–3
November 1
($ in millions)
December 1
December 31
December 31
Interest receivable—Convenience
Note: Securities held-to-maturity are not adjusted to fair value.
Exercise 12–4
Requirement 2
The specific citation that specifies the circumstances and conditions under which it
Requirement 3
FASB ACS 320–10–25–4 reads as follows:
“An entity shall not classify a debt security as held-to-maturity if the entity has the
a. Changes in market interest rates and related changes in the security’s
prepayment risk
Exercise 12–5
Requirement 1 ($ in millions)
Investment in bonds (face amount)…………………… 240
Requirement 2
Requirement 3
Fair-Value
Adjustment
7/1/2018 0
Tanner-UNF would record the following journal entry:
Fair Value
Adjustment
Balance on 7/1/2018 $0
± Adjustment needed to update fair value ?
Exercise 12–5 (concluded)
Requirement 4
1) Updating the fair-value adjustment:
Need to move from a fair-value adjustment of $9.2 to ($10.8):
Fair-Value
Adjustment
12/31/2018 9.2
2) Recording the sale transaction:
Cash (proceeds from sale)………………………………… 190.0
Exercise 12–6
Requirement 1 ($ in millions)
Fair Value
Adjustment
Balance on 12/31/2018 $9.2
± Adjustment needed to update fair value ?
Balance needed on 1/2/2019 ($200.8 − 190) ($10.8)
Requirement 2
Requirement 3
Fair-Value
Adjustment
7/1/2018 0
Mills would record the following journal entry:
Fair Value
Adjustment
Balance on 7/1/2018 $0
± Adjustment needed to update fair value ?
Balance needed on 12/31/2018 ($270 – 278.4) ($8.4)
Exercise 12–6 (concluded)
Requirement 4 ($ in millions)
1) Updating the fair-value adjustment:
Need to move from a fair-value adjustment from ($8.4) to $11.6:
Fair-Value
Adjustment
12/31/2018 8.4
Change needed 20.0
2) Recording the sale transaction:
Cash (proceeds from sale)………………………………… 290.0
Exercise 12–7
Requirement 1
2018
Fair Value
Adjustment
Balance on 12/31/2018 ($8.4)
± Adjustment needed to update fair value ?
December 31
Need to move from a fair-value adjustment of $0 to $50,000:
Fair-Value
Adjustment
Change needed 50,000
12/31/2018 50,000
Fair value adjustment………………………………………………….. 50,000
Unrealized holding gain—NI ($400,000 – $350,000)………. 50,000
Fair Value
Adjustment
Balance on 12/17/2018 $0
± Adjustment needed to update fair value ?