Problem 17-4 Presented below is information taken from a bond investment amortiz
ID: 2459790 • Letter: P
Question
Problem 17-4 Presented below is information taken from a bond investment amortization schedule with related fair values provided. These bonds are classified as available-for-sale. 12/31/14 12/31/15 12/31/16 Amortized cost $492,800 $520,380 $550,950 Fair value $498,830 $510,670 $550,950 (a) Indicate whether the bonds were purchased at a discount or at a premium. (b) Prepare the adjusting entry to record the bonds at fair value at December 31, 2014. The Fair Value Adjustment account has a debit balance of $1,080 prior to adjustment. (c) Prepare the adjusting entry to record the bonds at fair value at December 31, 2015. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) No. Date Account Titles and Explanation Debit Credit (b) Dec. 31, 2014 (c) Dec. 31, 2015
Explanation / Answer
At 31 dec.2014 Amortized Cost is Less than Fair Value it means securities have been purchased at discount. At Dec.31, 2015 Amortized Cost is more than Fair Value it means securities have been purchased at Premium and Securities at dec 2016 are purchased at cost.
If the securities have readily determinable fair values, then Available for Sale securuties shall be record their fair values in the balance sheet.
Journal Entry-
Gain/Loss my be transfered to fair value adjustment Account
31/12/2014 31/12/2015 31/12/2016 Amortized Cost $492,800.00 $520,380.00 $550,950.00 Fair Value $498,830.00 $510,670.00 $550,950.00 (Fair Value - Amortized Cost) $6,030.00 -$9,710.00 $0.00