Question

S&L Financial buys and sells securities which it classifies as available-for-sale. On December 27, 2018, S&L purchased Coca-Cola bonds at par for $892,000 and sold the bonds on January 3, 2019, for $900,000. At December 31, the bonds had a fair value of $885,000, and S&L has the intent and ability to hold the investment until fair value recovers.

Prepare journal entries to record (a) any unrealized gains or losses occurring in 2018 and (b) the sale of the bonds in 2019, including recognition of any unrealized gains in 2019 prior to sale and reclassification of amounts out of OCI. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1.Record the entry for Fair value adjustment of December 31, 2018.

2.Record the entry to adjust to fair value on the date of sale.

3.Record the entry to reverse the previous fair value adjustment.

Answer 1

Date	Account Titles and Explanation	Debit	Credit
Dec 31,2018	Unrealised gain/loss- OCI	7000
	Available for sale Debt- Securities		7000
	[To record decrease in the value of the debt bond ] (892000-885000)
Jan 3,2019	No entry required
Jan 3,2019	Cash	900000
	Available for sale Debt- Securities		885000
	Realised Gain on available for sale debt securities		8000
	Unrealised gain/loss- OCI		7000
	[To record sale of securities]