What journal entries should LED record to account for any credit or noncredit losses in the current period? Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
LED Corporation owns $1,000,000 of Branch Pharmaceuticals bonds and classifies its investment as securities held-to-maturity. The market price of Branch’s bonds fell by $450,000 due to concerns about one of the company’s principal drugs. The concerns were justified when the FDA banned the drug. LED views $200,000 of the $450,000 loss as related to credit losses, and the other $250,000 as noncredit losses. LED thinks it is more likely than not that it will have to sell the investment before fair value recovers.
What journal entries should LED record to account for any credit or noncredit losses in the current period? How should the decline affect net income and comprehensive income?
- General Journal
What journal entries should LED record to account for any credit or noncredit losses in the current period?
Note: If no entry is required for a transaction/event, select "No
| No | Transaction | General Journal | Debit | Credit |
|---|---|---|---|---|
| 1 | 1 | Loss on impairment (NI)selected answer incorrect | 450,000selected answer incorrect | |
| Retained earningsselected answer incorrect | 450,000selected answer incorrect | |||
| Fair value adjustmentselected answer incorrect | 200,000selected answer incorrect | |||
| Reclassification adjustment (OCI)selected answer incorrect | 200,000 |
- Effect
How should the decline affect net income and comprehensive income?
Note: Negative amounts should be entered with minus sign.
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