Question

S&L Financial buys and sells securities which it classifies as available for sale. On December 27 2021. S&L purchased Coca-Cola bonds at par for $885,000 and sold the bonds on January 3, 2022, for $892,500. At December 31, the bonds had a fair value of $878,000, and S&L has the intent and ability to hold the investment until fair value recovers. Prepare journal entries to record (a) any unrealized gains or losses occurring in 2021 and (b) the sale of the bonds in 2022, including recognition of any unrealized gains in 2022 prior to sale and reclassification of amounts out of OCI. (If no entry is required for a transaction/event, select "No journal entry required in the first account field.) View transaction list Journal entry worksheet 23 Record the entry for fair value adjustment of December 31, 2021. Note: Enter debits before credits General Journal Debit Credit Date December 31, 2021

1) Record the entry for fair value adjustment of December 31, 2021.

2)Record the entry to adjust to fair value on the date of sale

3) Record the entry to reverse the previous fair value adjustment.

4) Record the entry for sale of investment in Coca Cola bonds.

Answer 1

Refer the below images for the above asked entries, in a detailed way of solution.
Solution 1 0 Record the entry for fair value adjustments of December 31, 2021 : Particulars Debit credit Loss on investments (unrealised oli) $ 7000 $ 7000 To Fair value adjustment Alc [& 885000 - $878000) on the date of Sale value fair to to adjust ② the entry Record fair value adjustment : Balance on December 31, 2021 $ (2000) I Adjustment needed to update fair value Balance needed on January 3, 2020 $7500 (+892500 - $ 885000) Fair value Adjustment * 2000 1213112021 Change needed $ 145001 1/3/2022 7500

Debit credit or $ 14500 Particolars Fair value adjustment All Samount necessary to reach 'balance of f 2500) To Gain on investments Conrealized, och) $ 14500 ③ to reverse the previous far value Record the entry adjustment : credit credit particolau Debit Debit Reclassification Adjustment (OCF) Al Dr $7.500 To Fair value adjustment al (account balance) $7.500 the entry for sale of investments in Coca-cola Decord bonds : Debit credit $892500 particolars Cash (selling price) Ale or To Investment in bonds Caccount balance) To Gain on investments (NI) (to balance) $885000 $ 7.500