Question

S&L Financial buys and sells securities which it classifies as available-for-sale. On December 27, 2018, S&L purchased Coca-Cola bonds at par for $892,000 and sold the bonds on January 3, 2019, for $900,000. At December 31, the bonds had a fair value of $885,000, 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 2018 and (b) the sale of the bonds in 2019, including recognition of any unrealized gains in 2019 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

In the books of S & L Financial :

	Date	Account Titles	Debit	Credit
			$	$
a.	December 31, 2018	Other Comprehensive Income	7,000
		Investment in AFS securities		7,000
		To record holding loss on Coca-Cola bonds
b.	January 3, 2019	Cash	900,000
		Other Comprehensive Income		7,000
		Investment in AFS securities		885,000
		Gain on sale of AFS Investments		8,000
		to record the sale of investment in AFS securities

In the books of S & L Financial:

	Date	Account Titles	Debit	Credit
			$	$
December 31, 2018	a.	Other Comprehensive Income - Unrealized holding loss	7,000
		Fair Value Adjustment-to record the fair value adjustment		7,000
January 3, 2019	b.	Cash	900,000
		Gain on Sale of Investments		8,000
		Investment in AFS securities-to record to adjust the fair value on date of sale		892,000
	c.	Fair Value Adjustment	7,000
		Other Comprehensive Income - Unrealized holding loss-to record the reverse of the previous fair value adjustment		7,000