On January 1, 2020, Allen Company pays $150,000 par value for debt securities issued by Brookline Industries, and designates them as AFS securities. Following is valuation information for these securities for December 31, 2020 and 2021. Allen does not expect to sell the securities before recovery of losses at the end of either year.
$$\begin{array} { l r r }
& \text { December } \mathbf { 3 1 , 2 0 2 0 } & \text { December } \mathbf { 3 1 , 2 0 2 1 } \
\text { Fair value } & \mathbf { \$ 1 2 5 , 0 0 0 } & \mathbf { \$ 1 2 5 , 5 0 0 } \
\text { Present value of future cash flows } & 130,000 & 132,000
\end{array}$$ Required
Prepare the journal entry or entries necessary to report the change in fair value of the debt securities as of December 31, 2020 and December 31, 2021. Clearly indicate whether reported gains or losses appear in income or OCI.

Question

On January 1, 2020, Allen Company pays $150,000 par value for debt securities issued by Brookline Industries, and designates them as AFS securities. Following is valuation information for these securities for December 31, 2020 and 2021. Allen does not expect to sell the securities before recovery of losses at the end of either year.
 $$\begin{array} { l r r } 
& \text { December } \mathbf { 3 1 , 2 0 2 0 } & \text { December } \mathbf { 3 1 , 2 0 2 1 } \
\text { Fair value } & \mathbf { \$ 1 2 5 , 0 0 0 } & \mathbf { \$ 1 2 5 , 5 0 0 } \
\text { Present value of future cash flows } & 130,000 & 132,000
\end{array}$$ Required
Prepare the journal entry or entries necessary to report the change in fair value of the debt securities as of December 31, 2020 and December 31, 2021. Clearly indicate whether reported gains or losses appear in income or OCI.

Quizplus · Accepted Answer

The Answer of On January 1, 2020, Allen Company pays $150,000 par value for debt securities issued by Brookline Industries, and designates them as AFS securities. Following is valuation information for these securities for December 31, 2020 and 2021. Allen does not expect to sell the securities before recovery of losses at the end of either year.
 $$\begin{array} { l r r } 
& \text { December } \mathbf { 3 1 , 2 0 2 0 } & \text { December } \mathbf { 3 1 , 2 0 2 1 } \
\text { Fair value } & \mathbf { \$ 1 2 5 , 0 0 0 } & \mathbf { \$ 1 2 5 , 5 0 0 } \
\text { Present value of future cash flows } & 130,000 & 132,000
\end{array}$$ Required
Prepare the journal entry or entries necessary to report the change in fair value of the debt securities as of December 31, 2020 and December 31, 2021. Clearly indicate whether reported gains or losses appear in income or OCI.

On January 1, 2020, Allen Company Pays $150,000 Par Value