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On January 12th, 2018 Jefferson Corporation purchased bonds of Rose Corporation for $73 million and classified...

On January 12th, 2018 Jefferson Corporation purchased bonds of Rose Corporation for $73 million and classified the securities as available-for-sale. On December 31st, 2018 these bonds were valued at $67 million. Eight months later, on October 3rd, 2019 Jefferson Corporation sold these bonds for $87 million. 11. As part of the multi-step approach to record the 2019 transaction, Jefferson Corporation should first update the fair value adjustment on the date of sale by recording: A) An unrealized holding gain of $26 million in 2019. B) A gain of $20 million in 2019. C) A gain of $14 million in 2019. D) An unrealized holding gain of $20 million in 2019. 12. As part of the multi-step approach to record the 2019 transaction, Jefferson Corporation should next take the second step of: A) Reversing total accumulated unrealized holding gains of $20 million. B) Reversing total accumulated unrealized holding gains of $26 million. C) Reversing total accumulated unrealized holding gains of $14 million. D) Reversing total accumulated unrealized holding gains of $6 million. 13. As part of the multi-step approach to record 2019 transaction, Jefferson Corporation should finally take the third step of recording a sales transaction with a gain of: A) $6 million B) $14 million C) $20 million D) $26 million

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Expert Solution

11. As part of the multi-step approach to record the 2019 transaction, Jefferson Corporation should first update the fair value adjustment on the date of sale by recording: D) An unrealized holding gain of $20 million in 2019

On 31st December, there will be an unrealised loss of $6 million, so the fair market value will be $67 million. Now, the value increased to $87 million, so an unrealised gain of $20 million in 2019.

Journal entry for 2018 will be :

Unrealised loss on available for sale investment $6 million

To Available for sale investment $6 million

Journal entry for 2019 will be :

Available for sale investment $20 million

To Unrealised gain on available for sale investment $20 million

12. As part of the multi-step approach to record the 2019 transaction, Jefferson Corporation should next take the second step of: D) Reversing total accumulated unrealized holding gains of $6 million.

Accumulated unrealised was $6 million in 2018 which will be reversed by unrealised gain. So, net is $14 million gain.

Unrealised gain on available for sale investment $6 million

To Unrealised loss on available for sale investment $6 million

13. As part of the multi-step approach to record 2019 transaction, Jefferson Corporation should finally take the third step of recording a sales transaction with a gain of: B) $14 million

ekkarill92 answered 2 years ago
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