Reference no: EM133106905

Question 1 - Ivanhoe Company in its first year of operations provides the following information related to one of its available-for-sale debt securities at December 31, 2020.

Amortized cost $50,700

Fair value 41,400

Expected credit losses 12,400

a) What is the amount of the credit loss that Ivanhoe should report on this available-for-sale security at December 31, 2020?

b) Prepare the journal entry to record the credit loss, if any (and any other adjustment needed), at December 31, 2020.

c) Assume that the fair value of the available-for-sale security is $54,400 at December 31, 2020, instead of $41,400. What is the amount of the credit loss that Ivanhoe should report at December 31, 2020?

d) Assume the same information as for part (c). Prepare the journal entry to record the credit loss, if necessary (and any other adjustment needed), at December 31, 2020.

Question 2 - On January 2, 2020, Vaughn Company purchases a call option for $290 on Merchant common stock. The call option gives Vaughn the option to buy 1,050 shares of Merchant at a strike price of $51 per share. The market price of a Merchant share is $51 on January 2, 2020 (the intrinsic value is therefore $0). On March 31, 2020, the market price for Merchant stock is $54 per share, and the time value of the option is $210.

a) Prepare the journal entry to record the purchase of the call option on January 2, 2020.

b) Prepare the journal entries to recognize the change in the fair value of the call option as of March 31, 2020.

c) Prepare the journal entries to recognize the change in the fair value of the call option as of March 31, 2020?