Question

During 2021, Largent Enterprises purchased bonds as follows:

May 17, Purchased 100 Nugent bonds for $800 per bond.
July 12, Purchased 40 Alfredo bonds at $600 per bond, plus a $600 brokerage commission.

Largent accounts for these investments as securities available-for-sale. At December 31, 2021, the market values of the securities were as follows:

Security	Market Value per Bond
Nugent	$	720
Alfredo	$	640

Required:
1. Prepare the journal entries to record the acquisition of the two investments.
2. Prepare any necessary adjusting entries assuming the bonds are both classified as available-for-sale securities.

Answer 1

Journal entries

No	Date	Accounts titles and explination	Debit	Credit
1.	May 17	Investment in Nugent	$80,000
		Cash(100×$800)		$80,000
	July 12	Investment in Alfredo	$24,600
		Cash(40×$600 +$600)		$24,600
2.	Dec 31	Unrealized holding loss on investment($80,000- 100×$720)	$8,000
		Fair value Adjustment in Nugent		$8,000
	Dec 31	Fair value Adjustment in Alfredo	$1,000
		Unrealized holding gain on investment(40×$640 -$24,600)		$1,000