Elaina Company has the following investments as of December 31, 2017: Investments in common stock of Laser Company $1,500,000 Investment in debt securities of FourSquare Company $3,300,000 In both investments, the carrying value and the fair value of these two investments are the same at December 31, 2017. Elainas stock investments does not result in significant influence on the operations of Laser Company. Elainas debt investment is considered held-to-maturity. At December 31, 2018, the shares in Laser Company are valued at $1,100,000; the debt investment securities of FourSquare are valued at $2,500,000. Assume that these investments are considered impaired.

Instructions:

(a) Prepare the journal entries to record the impairment of these two securities at December 31, 2018.

(b) Assuming the fair value of the Laser shares is $1,400,000 and the value of its debt investment is $2,950,000, what entries, if any, should be recorded in 2019 related to impairment?

(c) Prepare the journal entries at December 31, 2018, assuming these securities are not impaired. (Ignore interest revenue entries.)

(d) Assume that the debt investment in FourSquare Company was available-for-sale and the expected credit loss was $900,000. Prepare the journal entry to record this impairment on December 31, 2018.

Hints:

The value of each investment carried on the books at December 31, 2017 will also be the value carried over to December 31, 2018 until adjustments are made at 12/31/18:

Laser Company $1,500,000 value carried on the books at 12/31/18 before adjustment

FourSquare Company $3,300,000 value carried on the books at 12/31/18 before adjustment

Also Notice: Elaina Company has an "Equity Investment" investment in the Common Stock of Laser, however, the investment in FourSquare is a "Debt" Investment NOT an Equity Investment

When doing part c. you are essentially repeating what you did in part a., except the decreased values at December 31, 2018 are NOT from an impairment issue as in part a., therefore, your adjustment is a fair market value adjustment NOT an impairment charge.

In part d. the amount of your adjustment will not be $900,000, just $800,000. Think about this one and stay tuned for the solution.