Bonita Company in its first year of operations provides the following information related to one of its available-for-sale debt securities at December 31, 2020. Amortized cost $50,900
Fair value 41,800
Expected credit losses 12,500

Required:
a. What is the amount of the credit loss that Bonita should report on this available-for-sale security at December 31, 2020?
b. Prepare the journal entry to record the credit loss, if any (and any other adjustment needed), at December 31, 2020.
c. Assume that the fair value of the available-for-sale security is $54,800 at December 31, 2020, instead of $41,800. What is the amount of the credit loss that Bonita should report at December 31, 2020?
d. Assume the same information as for part (c). Prepare the journal entry to record the credit loss, if necessary (and any other adjustment needed), at December 31, 2020.

a. What is the amount of the credit loss that Bonita should report on this available-for-sale security at December 31, 2020?

since available for sale securities must be reported at fair value, any difference between the amortized cost and the security's fair value should be reported under other comprehensive income.

in this case, since the amortized cost is lower than the fair value, a loss must be reported = $50,900 - $41,800 = $9,100

b. Prepare the journal entry to record the credit loss, if any (and any other adjustment needed), at December 31, 2020.

Dr Loss on AFS securities 9,100

     Cr AFS securities investment 9,100

c. Assume that the fair value of the available-for-sale security is $54,800 at December 31, 2020, instead of $41,800. What is the amount of the credit loss that Bonita should report at December 31, 2020?

since the amortized value is lower than the fair value, a gain must be reported under other comprehensive income.

gain = $54,800 - $50,900 = $3,900

d. Assume the same information as for part (c). Prepare the journal entry to record the credit loss, if necessary (and any other adjustment needed), at December 31, 2020.

Dr AFS securities investment 3,900

    Cr Gain on AFS securities 3,900

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