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In: Accounting

On March 17, 2020, Union Corporation purchased 500 bonds of AZQ as a long-term investment at...

On March 17, 2020, Union Corporation purchased 500 bonds of AZQ as a long-term investment at $400 per bond. On December 31, 2020, and December 31, 2021, the market value of the AZQ bonds is $420 and $430, respectively.

Required: (1.) What is the appropriate reporting category for this investment? Why? (2.) Prepare the adjusting entry on December 31, 2020. (3.) Prepare the adjusting entry on December 31, 2021.

Expert Solution

1)Appropriate reporting category:

Since the investment is a long term investment and there is no information regarding how many years the company wants to hold it, this Investment is treated as a long term investment-"Available to sale" category.

2.Adjusting entry on December 31, 2020:

Date	Account title	Debit($)	Credit($)
Dec 31,2020	Investment in AZQ bonds	10000
	Unrealized holding gain on investments [($420-400)×500bonds]		10000
	(Since the bond value is appreciated at a price higher than the purchase price)

Date

Account title

Debit($)

Credit($)

Dec 31,2020

Investment in AZQ bonds

10000

Unrealized holding gain on investments

[($420-400)×500bonds]

10000

(Since the bond value is appreciated at a price higher than the purchase price)

3) Adjusting entry on Dec 31,2021:

Date	Account title	Debit($)	Credit($)
Dec 31,2021	Investment in AZQ bonds	5000
	Unrealized gain on holding investment [($430-420)×500bonds]		5000
	(Unrealized gain recognized since the last adjusted entry price.)

Date

Account title

Debit($)

Credit($)

Dec 31,2021

Investment in AZQ bonds

5000

Unrealized gain on holding investment

[($430-420)×500bonds]

5000

(Unrealized gain recognized since the last adjusted entry price.)

ekkarill92 answered 2 years ago

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