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Case 4 Porter Industries Common Stock Impairment

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Words 634
Pages 3
Date: 03/15/2015
From: Samah Alshaikh
Re: Porter Industries common stock impairment
Facts:
Our client, Lennon Incorporated, in January 10, 2014, purchased 100 shares of Porter Industries common stock on for $25 per share. The corporation classified the investment as an available for sale security. The price of the Porter Industries shares has declined to $18 per share In March. Then, the price stayed stable between $17.70 and $18.20 per share from April to November. On December 31, 2014, the price of Porter Industries common stock was $18.10 per share. Lennon management believes that the price decreasing is temporary, and Lennon management does not intend to sell the stock in the next year. Lennon reported its investment in Porter Industries …show more content…
The first step is determining whether an investment is impaired. Basically, an investment is impaired if the fair value of the investment is less than its cost . According to ASC 320, the entities should assess whether an investment is impaired every reporting period . The second step is evaluating whether the impairment is other than temporary. The impairment is either temporary or other than temporary. To evaluate whether the impairment is temporary or other than temporary the entity should determine if it intends to sell the available for sale equity security at a loss shortly after the balance sheet date or not. If the entity intends to sell the equity soon, it should recognize an other than temporary impairment. Also, the security shall be deemed other than temporarily impaired in the period in which the decision to sell is made, not in the period in which the sale happens, when an entity has decided to sell an impaired available for sale security and the entity does not expect the fair value of the security to fully recover before the expected time of sale. However, an entity shall recognize an impairment loss when the impairment is considered other than temporary even if a decision to sell has not been made

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