Case 14 09
TO: O.T.T. Incorporated
FROM: Xiaoqian Kang
DATE: Dec. 31, 20X1
SUBJECT: Determine the amount of other-than-temporary impairment (OTTI)
Introduction
O.T.T. Incorporated, principally engaged in the manufacture and sale of clothing, has six investments remaining in the department’s portfolio as of December 31. According to ASC, this memo analyzes whether any of its investments are other-than-temporary impaired, and determines the amount of the impairment.
Facts
Investment 1 -- Happy New Year & Co.
OTT purchased 11 shares of Happy New Year & Co. stock on at $20 a share on Jan. 3, 20X1, and the price dropped to $15 in March and remained steady till Dec. 31, 20X1. OTT management does not believe the decline in price to be permanent and has asserted that it does not intend to sell this investment in the future.
Investment 2 – Beary Beary
OTT held notes of Beary Beary with an amortized cost of $95 and a fair value of $88 on Dec. 31, 20X1. OTT’s investment committee established a policy requiring the sale of this security when the fair value declines below $90.
Investment 3 – Buy-A-Lot Company
OTT held bonds of Buy-A-Lot Company with an amortized cost of $100 and a fair value of $88 as of December 31, 20X1. The company’s credit rating upgraded from BBB to BBB+ that management has asserted it does not intend to sell this investment.
Investment 4 – March Madness Incorporated
On March 25, 20X1, OTT bought 50 shares of March Madness Incorporated stock at $100 a share, classifying its investment as available for sale. As of December 31, 20X1, the price of the stock was $72. On January 31, 20X2, the date the Company’s financial statements are issued, the price of the stock went up to $75.
Investment 5 -- Tohoku Toys
OTT held bonds issued by Tohoku Toys with an amortized cost of $25 and a fair value of $5 as of December 31, 20X1. Tohoku Toys is going through a restructuring because it was significantly affected by a severe earthquake in April 20X1. OTT
FROM: Xiaoqian Kang
DATE: Dec. 31, 20X1
SUBJECT: Determine the amount of other-than-temporary impairment (OTTI)
Introduction
O.T.T. Incorporated, principally engaged in the manufacture and sale of clothing, has six investments remaining in the department’s portfolio as of December 31. According to ASC, this memo analyzes whether any of its investments are other-than-temporary impaired, and determines the amount of the impairment.
Facts
Investment 1 -- Happy New Year & Co.
OTT purchased 11 shares of Happy New Year & Co. stock on at $20 a share on Jan. 3, 20X1, and the price dropped to $15 in March and remained steady till Dec. 31, 20X1. OTT management does not believe the decline in price to be permanent and has asserted that it does not intend to sell this investment in the future.
Investment 2 – Beary Beary
OTT held notes of Beary Beary with an amortized cost of $95 and a fair value of $88 on Dec. 31, 20X1. OTT’s investment committee established a policy requiring the sale of this security when the fair value declines below $90.
Investment 3 – Buy-A-Lot Company
OTT held bonds of Buy-A-Lot Company with an amortized cost of $100 and a fair value of $88 as of December 31, 20X1. The company’s credit rating upgraded from BBB to BBB+ that management has asserted it does not intend to sell this investment.
Investment 4 – March Madness Incorporated
On March 25, 20X1, OTT bought 50 shares of March Madness Incorporated stock at $100 a share, classifying its investment as available for sale. As of December 31, 20X1, the price of the stock was $72. On January 31, 20X2, the date the Company’s financial statements are issued, the price of the stock went up to $75.
Investment 5 -- Tohoku Toys
OTT held bonds issued by Tohoku Toys with an amortized cost of $25 and a fair value of $5 as of December 31, 20X1. Tohoku Toys is going through a restructuring because it was significantly affected by a severe earthquake in April 20X1. OTT