Question

Bramble Company purchased, on January 1, 2020, as an available-for-sale security, $90,000 of the 7%, 5-year bonds of Chester Corporation for $82,999, which provides an 9% return. Prepare Bramble’s journal entries for (a) the purchase of the investment, (b) the receipt of annual interest and discount amortization, and (c) the year-end fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.) The bonds have a year-end fair value of $85,500

Answer 1

a) Debt Investments (Available-for-Sale): Debit = 82,999.

Cash: Credit = 82,999

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b) Cash: Debit = 6,300 (90,000 * 7%).

Debt Investments (Available-for-Sale): Debit = 1,169.91 (82,999 * 9% =7,469.91) - (90,000-7% = 6,300)

Interest Revenue : Credit = 7,469.91 (82,999 * 9%)

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c) Fair value adjustment(Available-for-Sale) : Debit = 831.09 (82,999 + 1,169.91 = 84,168.91 - 85,500).

Unrealized Holding Gain or Loss—Equity: Credit = 831.09

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