At the beginning of 2019, Ace Company had the following portfolio of investments in available-for-sale debt securities (all of which were acquired at par value):
|
Security |
Cost |
1/1/19 Fair Value |
| A | $35,000 | $44,000 |
| B | 53,000 | 50,000 |
| Totals | $88,000 | $94,000 |
During 2019, the following transactions occurred:
| Transactions: | ||
| May | 3 | Purchased C debt securities at their par value for $50,000. |
| July | 1 | Sold all of the A securities for $44,000 plus interest of $1,000. |
| Dec. | 31 | Received interest of $1,000 on the B and C securities. Additionally the following information was available: |
|
Security |
12/31/19 Fair Value |
| B | $58,000 |
| C | 53,000 |
Required:
| 1. | Prepare journal entries to record the preceding information. |
| 2. | What is the balance in the Unrealized Holding Gain/Loss account on December 31, 2019? |
| 3. | Next Level What justification does the FASB give for its treatment of unrealized holding gains and losses for available-for-sale securities? |
Homework Answers
Allowance for change in Fair value of Investment = $8000 + 3000 = $11000
B = $58000 - $50000 = $8000
C = $53000 - $50000 = $3000
Amount for last journal entry will be $11000 i.e. unrealized gain
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