Question

Problem 17-4 Presented below is information taken from a bond investment amortization schedule with related fair values provided. These bonds are classified as available-for-sale. 12/31/17 12/31/18 12/31/19 Amortized cost $537,100 $468,700 $591,700 Fair value $542,600 $457,900 $591,700 (a) Indicate whether the bonds were purchased at a discount or at a premium. (b) Prepare the adjusting entry to record the bonds at fair value at December 31, 2017. The Fair Value Adjustment account has a debit balance of $1,000 prior to adjustment. (c) Prepare the adjusting entry to record the bonds at fair value at December 31, 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) No. Date Account Titles and Explanation Debit Credit (b) Dec. 31, 2017 (c) Dec. 31, 2018

Answer 1

SOLUTION

(A) The bonds were issued at discount.

Journal entry-

S.No.	Date	Accounts titles and Explanatuon	Debit ($)	Credit ($)
B.	December 31, 2017	Fair value adjustment	4,500
		Unrealized gain-Other comprehensive income [(542,600-537,100)-1,000]		4,500
		(To record unrealized gain)
C.	December 31, 2018	Unrealized loss-Other comprehensive income	16,300
		Fair value adjustment*		16,300
		(To record unrealized loss)

*Fair value adjustment = [(468,700-457,900)+(4,500+1,000)] = 16,300