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On February 18, 2021, Union Corporation purchased 1,056 IBM bonds as a long-term investment at their...

On February 18, 2021, Union Corporation purchased 1,056 IBM bonds as a long-term investment at their face value for a total of $1,056,000. Union will hold the bonds indefinitely, and may sell them if their price increases sufficiently. On December 31, 2021, and December 31, 2022, the market value of the bonds was $1,024,000 and $1,072,000, respectively. Required: 2. & 3. Prepare the adjusting entry for December 31, 2021 and 2022. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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Answer #1

These bonds will be classified under available for sale investment as these are held for trading purpose.

Any unrealised gain or loss on such investment will he reported in Other Comprehensive Income.

Journal entries in the books of Union Corporatio:

1. Dec 31, 2021

Loss on available for sale security (OCI) Dr $ 32000

To Available for sale investment cr $ 32000

2. Dec 31, 2022

Available for sale investment Dr $ 48000

To Loss on available for sale security cr $ 32000

(Which is recorded in OCI)

To Gain on available for sale of securities (OCI) $ 16000

Gain on fair value of securities recorded

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