Ramirez Company has an investment in 6%, 10-year bonds of Soto Company. The investment was originally purchased
Question:
Ramirez Company has an investment in 6%, 10-year bonds of Soto Company. The investment was originally purchased at par for $100 in 2019 and it is accounted for at amortized cost. Early in 2020, Ramirez recorded an impairment on the Soto investment due to Soto’s financial distress. At that time, the present value of the cash flows discounted using the original effective interest rate was $90, and the present value of the cash flows using the then current market rate was $91. In 2021, Soto returned to profitability and the Soto investment was no longer considered impaired. Prepare the entries Ramirez would make in 2020 and 2021 under ASPE.
Step by Step Answer:
Intermediate Accounting Volume 1
ISBN: 978-1119496496
12th Canadian edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Irene M. Wiecek, Bruce J. McConomy