Question

Eastwood Enterprises owns 360 bonds of the Van Cleef Company (5% of the outstanding debt of Van Cleef). Eastwood is trying to determine the fair value of Van Cleef's bonds. The relevant facts are as follows: • Eastwood bought the Van Cleef bonds earlier in the accounting period for $1,000/bond at a time when the bonds were publicly traded. . Since Eastwood bought the bonds, Van Cleef Company has been delisted from the stock exchange and there is no longer an active market in the Van Cleef bonds. • Eastwood's Internal valuation specialist estimates the Van Cleef bonds to be worth $860/bond. Eastwood plans to continue holding the bonds, but may someday sell them if their value increases sufficiently. Required: 1. What is the fair value of Eastwood's investment in Van Cleef bonds? 2. Prepare a journal entry to record any necessary fair value adjustment.

Answer 1

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$ 309,600 Answer 1 Fair Value of Eastwood's Investment in Van Cleef Bonds (360 * 860) Answer 2 Journal Entry to record necessary fair value adjustment 50,400 Unrealized Holding Loss - OCI (360 * (1,000 - 860) Fair Value Adjustment 50,400