Melrose Company has an investment in bonds issued by Roscoe Industries that are
ID: 2395895 • Letter: M
Question
Melrose Company has an investment in bonds issued by Roscoe Industries that are classified as available-for-sale securities. The bonds were purchased at par. At December 31, Year 2, the Investment in Roscoe bonds account had a debit balance of $200,000, representing its amortized cost, and its Fair value adjustment account had a credit balance of $5,000. On December 31, Year 3, the amortized cost of those bonds had not changed, but the fair value of those bonds was $225,000. Which of the following will be included in the related journal entry dated December 31, Year 3?
A. Debit to Fair value adjustment for $20,000
B.Credit to Fair value adjustment for $20,000
C. Debit to Fair value adjustment for $30,000
D. Credit to Fair value adjustment for $30,000
Explanation / Answer
Journal entry :
So answer is c) Debit to Fair value adjustment for $30,000
Date accounts & explanation debit credit dec 31, year 3 Fair value adjustment account 30000 Unrealized holding gain on available for sale securities 30000