Question

Chapter 1 Intercorporate Investments: An Overview Held-to-maturity securities are recorded at amortized cost which approximates fair market value. The Company evaluates whether the decline in fair value of its investments is other-than-temporary at each quarter-end. This evaluation consists of a review by management, and includes market pri information and maturity dates for the securities held, market and economic trends in the industry and information on the issuer's financial condition and, if applicable, information on the guarantors financial condition. Factors considered in determining whether a loss is temporary include the length of time and extent to which the investment's fair value has been less than its cost basis be- cing , the financial specific events which estment for a rea condition and near-term prospects of the issuer and guarantors, including any may influence the operations of the issuer and our intent and ability to retain the inv sonable period of time sufficient to allow for any anticipated recovery of fair v Beverage Corporation 2013 financial statements) alue. (Note 1 to Monster Assume that the HTM bonds on Monster's 2013 balance sheet have a quired at par, and pay interest each December 31 at 4 percent. Monster determines that due to an other than-temporary decline in the issuer's liquidity, no additional interest payments are expected, but $325 million of principal is recoverable at maturity 2-year remaining life, were ac Required a. Calculate Monster's impairment loss for 2013. Round to the nearest million. b. Assume that on December 31,2014, the issuer's financial health has improved and the bonds' fair value is now $396 million. How does Monster report this information? If Monster receives all contractual principal and interest payments, what is the actual yield on the bond investment for 2014 and 2015? P1.4 Equity Method Investment Several Years After Acquisition On January 2, 2014, Best Bever- ages acquired 45 percent of the stock of Better Bottlers for $30 million in cash. Best Beverages accounts for its investment using the equity method. At the time of acquisition, Better Bottlers' balance sheet was as follows (in millions): Better Bottlers Balance Sheet, January 2, 2014

Answer 1

1)
The present value of expected payments = $325/(1.04)^2	$ 300.48
Impairment loss = $396 – $300.48 =	$ 95.52
Monster's Impairment Loss for 2013	$ 95.52
2)
Impairment reversals are not reported, per U.S. GAAP
3)
If the interest and principal payments continue, Monster’s yield assume to be rate X
Interest = $396 x 4%	15.84
$300.48 = $15.84/(1+X%) + [($15.84 +396)]/(1+X%)^2
Yield X =	20.00%