Business, 19.01.2021 19:10 AysiaRamosLee

On February 18, 2018, Union Corporation purchased $1,491,000 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 $1,449,000 and $1,512,000, respectively. 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.)

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On December 31, 2018: Debit Loss on available for sale security for $42,000; and Credit Available for sale investment for $42,000.

On December 31, 2019: Debit Available for sale investment $63,000; Credit Loss on available for sale security for $42,000; and Credit Gain on available for sale of securities for $21,000.

Explanation:

Since the bonds are held for trading purpose, they therefore fall under the category of available for sale investment.

The adjusting entry for December 31, 2018 and 2019 will therefore look as follows:

Date Account Title Debit ($) Credit ($)

Dec. 2018 Loss on available for sale security (w.1) 42,000

Available for sale investment 42,000

(To record change in the value of IBM bonds.)

Dec. 2019 Available for sale investment 63,000

Loss on available for sale security 42,000

Gain on available for sale of securities (w.2) 21,000

(To record gain on fair value of IBM bonds.)

Workings:

w.1: Loss on available for sale security = Purchase price - Market value on December 31, 2018 = $1,491,000 - $1,449,000 = $42,000

w.2: Gain on available for sale of securities = Market value on December 31, 2018 - Purchase price = $1,512,000 - $1,491,000 = $21,000

Note:

The loss and and for each of the years 2018 and 2019 respectively are recorded under Other Comprensive Income (OCI) in the Income Statement.

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On February 18, 2018, Union Corporation purchased $1,491,000 of IBM bonds. Union will hold the bonds...

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