Repeat E16-21 assuming that Gretta measures the debt security at fair value through OCI. Assume for simplicity that the carrying value is not reduced by amortization during 2017; thus, the carrying value on December 31, 2017, is $8,000 (accounting for the prior year write-down). Gretta determines that there has not been a significant increase in credit risk in 2016 and 2017. In 2016, Gretta determines the probability of default is 1% over the next 12 months and 3% over the the life of the investment. In 2017. Gretta determines that the probability of default is 0.75% over the next 12 months and 2% over the life-time of the investment.

Data from E16-21

Gretta Company purchased a debt investment on June 15, 2016, and classified it as available for sale. On December 31, 2016, the investment had a carrying value of $8,500 and a fair value of $8,000. On that date, the present value of the future cash flows from the debt investment is $8,100. On December 31, 2017, the carrying value, fair value, and present value of the investment are $7,900, $1,800, and $7,800, respectively.