Question

On January 2, 2019, X Co paid $99,000 for $100,000 of Debtor Co's 7% 10-year bonds. The bonds pay interest on 12/31 of each year. On December 31, 2019, Debtor Co paid the required interest payment. On that date, the Debtor bonds were trading at 2. 97. INSTRUCTIONS; Prepare the journal entry that X Co. would make on 1/2/19 to record its acquisition of Debtor Co's bonds.. b. а. Assuming that X holds the bonds as available for sale securities, prepare the journal entries that X would record during 2019 to maintain its investment in the debt securities. Assuming INSTEAD that X holds the bonds as trading securities, prepare the journal entries that X would record during 2019 to maintain its investment in the debt securities с.

Answer 1

Answer A
Date	Accounts title and explanations	Debit	Credit
Jan 2, 2019	Debt Investments	$        99,000
	Cash		$        99,000
	To record acquisition of debt investments.
Answer B (Available for sale securities = AFS)
Date	Accounts title and explanations	Debit	Credit
Dec 31, 2019	Cash (100000*7%)	$ 7,000
	Interest Revenue		$ 7,000
	To record interest received on debt investments.
Dec 31, 2019	Unrealized loss (Comprehensive income)	$          2,000
	Fair Value Adjustment - AFS		$          2,000
	To record the fair value adjustment.
Answer C (Trading securities)
Date	Accounts title and explanations	Debit	Credit
Dec 31, 2019	Cash (100000*7%)	$ 7,000
	Interest Revenue		$ 7,000
	To record interest received on debt investments.
Dec 31, 2019	Unrealized loss (Net income)	$          2,000
	Fair Value Adjustment - Trading securities		$          2,000
	To record the fair value adjustment.