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.
12/31/17 12/31/18 12/31/19
Amortized cost $461,100 $550,200 $604,300
Fair value $466,500 $539,700 $604,300
(a) Indicate whether the bonds were purchased at a discount or at a premium.
Presented below is information taken from a bond i DiscountPremium
(b) Prepare the adjusting entry to record the bonds at fair value at December 31, 2017. The Fair Value Adjustment account has a debit balance of $1,000 prior to adjustment.
(c) Prepare the adjusting entry to record the bonds at fair value at December 31, 2018.

Answer 1

Answer:

a. The bonds are issued at discount

b. The required journal entry is provided below

Date              Account Titles and Explanation        Debit     Credit

31 Dec, 17     Fair value adjustment                         $4,400

                    (466,500 - 461,100 - 1,000)

                    Unrealized gain - Other                                       $4,400

                    comprehensive income

                    (To record unrealized gain)

c. The required journal entry is provided below

Date              Account Titles and Explanation      Debit       Credit

31 Dec, 18     Unrealized loss - Other                    $15,900

                     comprehensive income

                     Fair value adjustment                                        $15,900

                     (To record unrealized loss)

                     (550,200 - 539,700) + (4,400 + 1,000)