Question

Question #2 The following are the cost and fair value for a debt investment (Available to December 31, 2020. of investment Available for Sale) on Fair Value Debt Investment - Available for Sale Cost 10,000,000 $ $ 9,000,000 Assume the company had Net Income of $620,000 at the end of 2020 Required: 1) Calculate the Unrealized Holding Gains and Losses. 2) Does the Unrealized Holding Gains and Losses affect the Income Statement or Balance Sheet 3) Prepare the journal entry to record any Unrealized Holding Gains and Losses. 4) Show how this affects the Statement of Comprehensive income.

Answer 1

1)

Unrealized Holding Loss = Cost - Fair value = 10,000,000 - 9,000,000 = $1,000,000  

2)

No, Since the debt investment is held for sale, the same will be recorded on the income statement only when this is sold. However this investment will be recorded in Balance sheet as separate line item in shareholders equity section.

3)

Unrealized Holding Gain or Loss a/c Dr $ 1,000,000

To Fair market  value adjustment $1,000,000

4)

The unrealized loss of $1,000,000 shouldl be recorded in Comprehensive income statement, until the investment is sold at which point the loss will be carried to income statement.