Question

S&L Financial buys and sells securities which it classifies as available-for-sale. On December 27, 2021, S&L purchased Coca-Cola bonds at par for $895,000 and sold the bonds on January 3, 2022, for $905,000. At December 31, the bonds had a fair value of $887,000, and S&L has the intent and ability to hold the investment until fair value recovers.

Prepare journal entries to record (a) any unrealized gains or losses occurring in 2021 and (b) the sale of the bonds in 2022, including recognition of any unrealized gains in 2022 prior to sale and reclassification of amounts out of OCI. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Answer
Date	Accounts title and explanation	Debit ($)	Credit ($)
31-Dec-21	Unrealized holding loss on AFS investments-OCI	8000		887000-895000
	Fair value adjustment		8,000
	(To record the fair value adjustment)
03-Jan-22	Fair value adjustment	18,000		905000-887000
	Unrealized holding gain on AFS investments-OCI		18,000
	(To record the fair value adjustment)
03-Jan-22	Reclassification adjustment-OCI	3,000		18000-8000
	Fair value adjustment		3,000
	(To reverse the previous fair value adjustment)
03-Jan-22	Cash	905,000
	Gain on investments		10,000
	Investment in coco cola bonds		895,000
	(To record the sale of investments in coco cola bonds)