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On February 18, 2021, Joey Co. purchased Debt of IBM as a long-term investment for $60...

On February 18, 2021, Joey Co. purchased Debt of IBM as a long-term investment for $60 Million at par. Joey Co. does not intend to hold this Debt Investment till maturity but also, does not intend to sell it in the short-term. On December 31, 2021, and December 31, 2022, the market value of Joey’s Co’s Debt Investment is $58 Million and $61 Million, respectively. Required:

1. What is appropriate reporting category for this investment? Why?

2. Prepare the adjusting entry for December 31, 2021?

3. Prepare the adjusting entry for December 31, 2022?

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Answer #1
Ans1.
The IBM investment will be treated as
Available -for Sale Investment.
The investment is not intended for short
term sales , it is not intended to hold it
till maturity also, so it falls under the third
category of Available for Sale security.
Ans 2.
Journal entry on Dec 31.2021.
Date Account Title Dr $ Cr $
Dec 31,2021 Unrealized Loss on Available for Sale Security( Other Comprehensive Income)              2,000,000
Available for Sale Investment           2,000,000
Ans 3.
Journal entry on Dec 31.2022.
Date Account Title Dr $ Cr $
Dec 31,2022 Unrealized Loss on Available for Sale Security( Other Comprehensive Income)           2,000,000
Unrealized Gain on Available for Sale Security( Other Comprehensive Income)           1,000,000
Available for Sale Investment              3,000,000
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