Question

For several years Fister Links Products has held Microsoft bonds, considered by the company to be securities available-for-sale. The bonds were acquired at a cost of $530,000. At the end of 2018, their fair value was $646,000 and their amortized cost was $540,000. At the end of 2019, their fair value was $637,500 and their amortized cost was $550,000. At what amount will the investment be reported in the December 31, 2019, balance sheet? What adjusting entry is required to accomplish this objective (ignore interest)?

Answer 1

Security	Amortized Cost	Fair Value	Fair Value Adjustment
Microsoft Bonds - 2019	637,500.00	550,000.00	87,500.00
Existing Balance in FVA ($646,000 - $540,000)			106,000.00
Fair Value Adjustment Needed			(18,500.00)

Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
31-Dec-19	Net Unrealized Holding Gains & Losses - OCI	18,500.00
	Fair Value Adjustment		18,500.00
	(To record the fair value adjustment)
Amount of Investment Shown in Balance Sheet - 2019		637,500.00