Question

7. Pharoah corporation has municipal bonds classified as held-to-maturity at 12/31/25. par value $870,000, an amortized cost of $870,000, and a fair value of $785,000. the company believe that impairment account is now appropriate for these bond

Answer 1

Based on the given information, it appears that Pharoah Corporation's municipal bonds are experiencing impairment. This is because the fair value of the bonds, which is $785,000, is lower than their amortized cost of $870,000. Generally, when a security's fair value is below its amortized cost, it is an indication of potential impairment.

To address this impairment, Pharoah Corporation should create an impairment account and adjust the value of the municipal bonds down to their fair value of $785,000. The adjustment should be recorded as a loss on the income statement and a credit to the impairment account. This will effectively reduce the carrying amount of the municipal bonds and reflect their decreased value in the financial statements.

It's important for Pharoah Corporation to carefully consider the need for an impairment account and make sure that it adheres to the accounting standards and regulations related to the impairment of financial assets. Additionally, the company should continue to monitor the performance of the municipal bonds and adjust the impairment account as necessary based on changes in fair value.