Bloom Corporation purchased $1,100,000 of Taylor Company 5 bonds, at their face amount, with the intent and ability to hold the bonds until they matured in 2025, so Bloom classifies its investment as HTM Unfortunately, a combination of problems at Taylor Company and in the debt securities market caused the fair value of the Taylor investment to decline to $680,000 during 2021 The following are the two alternative scenarios that should be analyzed independent of each other Bloom now believes it is more likely than not that it will have to sell the Taylor bonds before the bonds have a chance to recover their fair value Of the $420,000 decline in fair value, Bloom attributes $260,000 to credit losses, and $160,000 to noncredit losses Bloom does not plan to sell the Taylor bonds prior to maturity, and does not believe it is more likely than not that it will have to sell the Taylor bonds before the bonds have a chance to recover their fair value Of the $420,000 decline in fair value, Bloom attributes $260,000 to credit losses, and $160,000 to noncredit losses Required Prepare appropriate entry(s) at December 31, 2021, and indicate how the scenario will affect the 2021 income statement (ignoring income taxes) On January 1, 2021, Cameron Inc bought 10 of the outstanding common stock of Lake Construction Company for $100 million cash, giving Cameron the ability to exercise significant influence over Lakes operations At the date of acquisition of the stock, Lake's net assets had a fair value of $600 million Its book value was $500 million The difference was attributable to the fair value of Lake's buildings and its land exceeding book value, each accounting for one half of the difference Lakes net income for the year ended December 31, 2021, was $100 million During 2021, Lake declared and paid cash dividends of $20 million The buildings have a remaining life of 5 years Required 1 Complete the table below and prepare all appropriate journal entries related to the investment during 2021, assuming Cameron accounts for this investment by the equity method 2 Determine the amounts to be reported by Cameron

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jul 31, 2024

Bloom Corporation purchased $1,100,000 of Taylor Company 5% bonds, at their face amount, with the intent and ability to hold the bonds until they matured

Bloom Corporation purchased $1,100,000 of Taylor Company 5% bonds, at their face amount, with the intent and ability to hold the bonds until they matured in 2025, so Bloom classifies its investment as HTM. Unfortunately, a combination of problems at Taylor Company and in the debt securities market caused the fair value of the Taylor investment to decline to $680,000 during 2021. The following are the two alternative scenarios that should be analyzed independent of each other.

Bloom now believes it is more likely than not that it will have to sell the Taylor bonds before the bonds have a chance to recover their fair value. Of the $420,000 decline in fair value, Bloom attributes $260,000 to credit losses, and $160,000 to noncredit losses.
Bloom does not plan to sell the Taylor bonds prior to maturity, and does not believe it is more likely than not that it will have to sell the Taylor bonds before the bonds have a chance to recover their fair value. Of the $420,000 decline in fair value, Bloom attributes $260,000 to credit losses, and $160,000 to noncredit losses.

Required: Prepare appropriate entry(s) at December 31, 2021, and indicate how the scenario will affect the 2021 income statement (ignoring income taxes).

On January 1, 2021, Cameron Inc. bought 10% of the outstanding common stock of Lake Construction Company for $100 million cash, giving Cameron the ability to exercise significant influence over Lakes operations. At the date of acquisition of the stock, Lake's net assets had a fair value of $600 million. Its book value was $500 million. The difference was attributable to the fair value of Lake's buildings and its land exceeding book value, each accounting for one-half of the difference. Lakes net income for the year ended December 31, 2021, was $100 million. During 2021, Lake declared and paid cash dividends of $20 million. The buildings have a remaining life of 5 years. Required: 1. Complete the table below and prepare all appropriate journal entries related to the investment during 2021, assuming Cameron accounts for this investment by the equity method. 2. Determine the amounts to be reported by Cameron.