Question

Exercise E 12-26 Fair Value Option

Colah Company purchased $2.7 million of Jackson. INC. 5% bonds at par on July 1, 2018, with interest paid semi-annually. when the bonds were aquired Colah decided to elect fair value option for accounting for its investment. At December 31, 2018, the jackson bond as a fair value of $3, 070,000. Colah sold the Jackson bonds on July 1, 2019 for $2,430,000.

Required:

1. Prepare Colah's journal entries to record:

a. The purchase of Jackson bonds on July 1

b. Interest revenue for the last half of 2018

c. Any year-end 2018 adjusting entries

d. Interest revenue for the first half of 2019

e. Record the entry to adjust to fair vale at the date of the sale

f. any entry or entries necessary upon the sale of the Jackson bonds on July 1, 2019

2. Fill out the following table to show the effect of the Jackson bonds on Colah's net income, other comprehensive income, and comprehensive income for 2018, 2019, and cumulatively over 2018 and 2019

2018 2019 Total

Net Income

OCI

Compehensive Income

Answer 1

As per policy only first four questions will be answered

Part 1A

Date	account titles and explanation	debit	credit
July 1 2018	Trading securities investment	2700000
	Cash		2700000

Part 1B

Date	account titles and explanation	debit	credit
December 31 2018	cash (2700000*5%/2)	67500
	Interest revenue		67500

Part 1C

Date	account titles and explanation	debit	credit
December 31 2018	fair value adjustment - trading securities investment (3070000-2700000)	370000
	Unrealized holding gain - NI		370000

Part 1D

Date	account titles and explanation	debit	credit
June 30 2019	cash (2700000*5%/2)	67500
	Interest revenue		67500