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Chapter 10: 4TI (page 560)

On August 20, 2018, Mraz, Co. decides to invest excess cash of \(2,500 by purchasing Virginia, Inc. bonds. At year-end, December 31, 2018, the market price of the bonds was \)2,000. The investment is categorized as available-for-sale debt. Journalize the adjusting entry needed at December 31, 2018.

Short Answer

Expert verified

Adjusting entry will include the decline in the value of the available for sale debt investment of$500.

Step by step solution

01

Definition of Adjusting Entry

The journal entry was made at year-end with the main aim of updating the account balances is known as adjusting entry. Adjusted trial balance is prepared after such entries are prepared.

02

Adjusting Journal Entry

Date

Accounts and Explanation

Debit $

Credit $

31 Dec 2018

Unrealized holding loss – available for sale

$500

Fair value adjustment – available for sale

$500

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Most popular questions from this chapter

In 150 words or fewer, explain the difference between trading debt investments and available-for-sale debt investments.

What is a debt security?

Question: S10-5 Accounting for debt investments

On February 1, 2018, Bell Co. decides to invest excess cash of \(16,800 by purchasing a Grant, Inc. bond at face value. At year-end, December 31, 2018, the fair value of the Grant bond was \)19,600. The investment is categorized as a trading debt investment.

Requirements

What was the net effect of the investment on Bell’s net income for the year ended December 31, 2018?

Accounting for equity investments

On January 1, 2018, Bark Company invests \(10,000 in Roots, Inc. stock. Roots pays Bark a \)400 dividend on August 1, 2018. Bark sells the Roots’s stock on August 31, 2018, for $10,450. Assume the investment is categorized as a short-term equity investment and Bark Company does not have significant influence over Roots, Inc.

Requirements

1. Journalize the transactions for Bark’s investment in Roots’s stock.

Where on the financial statements is an unrealized holding gain or loss on available-for-sale debt investments reported?
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