On June 30, 2018, InterLogic, Inc. purchased a 5-year bond (6%, $100,000 face value) from SkyHigh Enterprises for $96,000. The investment was classified as an available-for-sale investment. SkyHigh filed for bankruptcy under Chapter 11 in June 2021. Fair value of the bond at December 31, 2021, was $55,000. On InterLogics books, amortized cost at December 31, 2021, was $98,600. The Fair Value Adjustment account had a credit balance of $43,600. InterLogics management intends to sell the bond in January 2022. $40,000 of the loss is due to credit factors. Which of the following entries, if any, should be made by InterLogic on December 31, 2021?

Select one:

a. Dr. Loss on Impairment 43,600

Cr. Investment in SkyHigh Bond 43,600

Dr. Fair Value Adjustment 43,600

Cr. Unrealized Loss - Other Comprehensive Income 43,600

b.Dr. Loss on Impairment 40,000

Cr. Allowance for Credit Losses 40,000

Dr. Fair Value Adjustment 40,000

Cr. Unrealized Loss - Other Comprehensive Income 40,000

c. Dr. Loss on Impairment 43,600

Cr.Investment in SkyHigh Bond 43,600

d. Dr. Loss on Impairment 40,000

Cr. Allowance for Credit Losses 40,000

e. No entry is necessary. Investment is already reported at fair value.