For several years Fister Links Products has held Microsoft bonds, considered by
ID: 2329808 • Letter: F
Question
For several years Fister Links Products has held Microsoft bonds, considered by the company to be securities available-for-sale. The bonds were acquired at a cost of $670,000. At the end of 2018, their fair value was $814,000 and their amortized cost was $680,000. At the end of 2019, their fair value was $812,500 and their amortized cost was $690,000. At what amount will the investment be reported in the December 31, 2019, balance sheet? What adjusting entry is required to accomplish this objective (ignore interest)?
Explanation / Answer
Solution:
Investment will be reported at fair value on December 31, 2019 i.e. $812,500.
Amortized cost of investment at December 31, 2018 = $680,000
Fair value at December 31, 2018 = $814,000
Unrealized holding gain on December 31, 2018 = $814,000 - $680,000 = $134,000
Amortized cost of investment at december 31, 2019 = $690,000
Fair value at December 31, 2019 = $812,500
Unrealized holding gain on December 31, 2019 = $812,500 - $690,000 = $122,500
Adjustment to Unrealized holding gain = $134,000 - $122,500 = $11,500
Adjusting Journal Entries - Fister link Products Date Particulars Debit Credit 31-Dec-19 Unrealized holding gain or loss - OCI $11,500.00 To Fair Value Adjustments $11,500.00 (Being adjusting entry to carry bond investment at fair value)