Question

Garfield Company purchased, as an available-for-sale security, $90,500 of the 8%, 7-year bonds of Chester Corporation for $81,688, which provides an 10% return.

Prepare Garfield’s journal entries for (a) the purchase of the investment, (b) the receipt of annual interest and discount amortization, and (c) the year-end fair value adjustment. (Assume a zero balance in
the Fair Value Adjustment account.) The bonds have a year-end fair value of $85,975. (Round answers to 0 decimal places, e.g. 1,225. 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.)

Answer 1

Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
a.	Debt Investments (Available-for-Sale)           Dr.	81,688
	To Cash		81,688
	(record the purchase of Bonds of Chester Corporation)
b.	Cash                                                                                Dr.	7,240		$90,500 X 8%
	Debt Investments (Available-for-Sale)           Dr.	929		$8169 - $7,240
	To Interest Revenue		8,169	$81,688 X 10%
	(Record the interest received on bonds)
c.	Fair Value Adjustment (Available-for-Sale) Dr.	3,358		$85,975 - ($81,688 + $929)
	To Unrealized Holding Gain (Loss)		3,358	$85,975 - ($81,688 + $929)
	(Record the year end fair value adjustment)