Professional Documents
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Kuis Akl2 Mei 2016
Kuis Akl2 Mei 2016
The bonds were purchased at par for $400,000 and at the end of 2015 have a
remaining life of 3 years with annual interest payments at 10%, paid at the
end of each year. This debt investment is classified as held-to- maturity. PQR
is facing a tough economic environment and informs its investors that it will
be unable to make all payments according to the contractual terms. The
controller of ABC has prepared the following revised expected cash flow
forecast for this bond investment
Dec 31 Expected cash
flows
2016 35,000
2017 35,000
2018 385,000
Total cash 455,000
flows
Required:
a. Determine the impairment loss for ABC at Dec 31, 2015
b. Prepare the entry to record the impairment loss for ABC at Dec 31, 2015
c. On May 15, 2016, PQR receives a major capital infusion from a private
equity investor. It informs ABC that the bonds now will be paid according
to the contractual terms. What do you think ABC should do in light of this
new information.
Discount factor
10% 1 year 0.90909
10% 2 years 0.82645
10% 3 years 0.75132
Discount factor
5% 1 year 0.95238
5% 2 years 0.90703
5% 3 years 0.86384