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23 March, 19:52

Presented below is information taken from a bond investment amortization schedule with related fair values provided. These bonds are classified as available-for-sale. 12/31/20 12/31/21 12/31/22 Amortized cost $472200 $543100 $597900 Fair value $478400 $532100 $597900 (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, 2020. The Fair Value Adjustment account has a debit balance of $900 prior to adjustment. (c) Prepare the adjusting entry to record the bonds at fair value at December 31, 2021.

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  1. 23 March, 22:45
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    (a) The bonds are issued at a discount.

    (b) The required journal entry is as follows:

    On December 31, 2020

    Fair value adjustment { ($478400-$472200) - $900} A/c Dr. $5,300

    To Unrealized gain - other comprehensive income $5,300

    (To record unrealized gain)

    (c) The required journal entry is as follows:

    On December 31, 2021

    Unrealized loss - other comprehensive income:

    = (amortized cost - fair value) + (Unrealized gain + Debit balance prior to adjustment)

    = ($543,100 - $532,100) + ($5,300 + $900)

    = $17,200

    The required journal entry is as follows:

    Unrealized gain - other comprehensive income A/c Dr. $17,200

    To Fair value adjustment $17,200

    (To record unrealized loss)
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