Problem 17-4 Presented below is information taken from a bond investment amortiz
ID: 2492689 • 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 $491,390 $519,050 $550,760
Fair value $497,230 $509,300 $550,760
(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 $1,470 prior to adjustment.
(c) Prepare the adjusting entry to record the bonds at fair value at December 31, 2015.
Explanation / Answer
Amortized Value Fair Value Unrealized Gain / (Loss) 12/31/14 491,390 497,230 5,840 12/31/15 519,050 509,300 (9,750) 12/31/16 550,760 550,760 - 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. 4370 2014 To Unrealized Gain on AFS Securities 4370 Answer c. Journal Entry Date Particulars Dr. Amt. Cr. Amt. Dec-31 Unrealized Loss on AFS Securities 14,120 2015 To Adjustment to Fair Value - AFS Securities 14120