Presented below is information taken from a bond investment amortization schedul
ID: 2492102 • Letter: P
Question
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 $491,340 $520,750 $550,460 Fair value $497,790 $509,740 $550,460 (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 $1,290 prior to adjustment. (c) Prepare the adjusting entry to record the bonds at fair value at December 31, 2015.
Explanation / Answer
Answer a. Bonds are purchased at Discount - Since the amortised cost of the Bonds is increasing year by year. Answer b. Journal Entry Date Particulars Dr. Amt. Cr. Amt. Dec-31 Adjustment to Fair Value - AFS Securities Dr. 5160 2014 To Unrealized Gain on AFS Securities 5160 Answer c. Journal Entry Date Particulars Dr. Amt. Cr. Amt. Dec-31 Unrealized Loss on AFS Securities 16170 2014 To Adjustment to Fair Value - AFS Securities 16170