For several years Fister Links Products has held Microsoft bonds, considered by
ID: 2575210 • 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 $650,000. At the end of 2018, their fair value was $790,000 and their amortized cost was $660,000. At the end of 2019, their fair value was $787,500 and their amortized cost was $670,000. 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)?
1.At what amount will the investment be reported in the December 31, 2019, balance sheet?
2.What adjusting entry is required to accomplish this objective (ignore interest)? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Record the adjusting entry to report the correct amount on this year's balance sheet.
Explanation / Answer
The securities available for sale are reported at their fair market value and the change in value go into a special account, which is called "Unrealized gain /loss in other comprehensive income", which is located in stockholders equity.
1.) Thus the investment will be reported in the December 31,2019 balance sheet at fair value of $787,500.
2.) For reporting the investments at its fair value at each balance sheet date, an adjusting entry is required on each balance sheet which is shown as follows:-
Date Particulars Debit Credit Dec. 31,2018 Bonds (Fair value) Dr. 790,000 To Unrealized gain in OCI 140,000 To Bonds (Cost) 650,000 Dec. 31,2019 Bonds (Fair Value) Dr. 787,500 Unrealized loss in OCI Dr. 2,500 To Bonds (Fair Value) 790,000