Question

On February 18, 2018, Union Corporation purchased $600,000 of IBM bonds. Union will hold the bonds indefinitely, and may sell them if their price increases sufficiently. On December 31, 2018, and December 31, 2019, the market value of the bonds was $580,000 and $610,000, respectively.

Prepare the adjusting entry for December 31, 2018 and 2019.

Answer 1

The adjusting entry is shown below.

Step-by-step explanation:

According to the scenario, the adjusting entry for the given data are as follows:

Dec.31,2018 Net unrealized gain or loss A/c Dr $20,000

To Fair value adjustment A/c $20,000

(Being the fall in value is recorded)

Computation = $600,000 - $580.000 = $20,000

Dec.31,2019 Fair value adjustment A/c Dr $30,000

To Net unrealized gain or loss A/c $30,000

(Being the rise in value is recorded)

Computation = $610,000 - $580,000 = $30,000