Question
In: Accounting
On February 18, 2018, Union Corporation purchased $1,976,000 of IBM bonds. Union will hold the bonds...
On February 18, 2018, Union Corporation purchased $1,976,000 of
IBM bonds. Union will hold the bonds indefinitely, and may sell
them if their price increases sufficiently. On December 31, 2018,
and December 31, 2019, the market value of the bonds was $1,924,000
and $2,002,000, respectively.
Required:
2. & 3. Prepare the adjusting entry for
December 31, 2018 and 2019. (If no entry is required for a
transaction/event, select "No journal entry required" in the first
account field.)
Solutions
Expert Solution
| Date | Account Title | Debit | Credit | ||||||
| 31-Dec-18 | Unrealized loss on investment(Other Comprehensive Income) | 52,000 | (1976000-1924000) | ||||||
| Investment | 52,000 | ||||||||
| (Adjustment for Decrease in fair Value) | |||||||||
| 31-Dec-19 | Investment | 26,000 | (2002000-1976000) | ||||||
| Unrealized gain on investment(Other Comprehensive Income) | 26,000 | ||||||||
| (Adjustment for Increase in fair Value) | |||||||||
| Note: | |||||||||
| This investment will be classified as "Available for Sale" .Union will hold the bonds indefinitely, and may sell them if their price increases sufficiently | |||||||||
| So the anticipated sale date is not within the next 12 months. | |||||||||
| Available for sale long-term investments are recorded at cost when purchased and subsequently adjusted to reflect their fair values | |||||||||
| at the end of each reporting period. | |||||||||
| Any Unrealized holding gains or losses are kept as "other comprehensive income" until the long-term investment has been sold. | |||||||||
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