Question

On January 1, Valuation Allowance for Available-for-Sale Investments had a zero balance. On December 31, the cost of the available-for-sale securities was $252,000, and the fair value was $258,890. Prepare the adjusting entry to record the unrealized gain or loss on available-for-sale investments on December 31. Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

Dr Valuation Allowance for Available-for-Sale Investments $6890

Cr unrealized gain/(loss) on AFS investments $6890

Step-by-step explanation:

The unrealized gain or loss on the available-for-sale securities is the difference between its cost of $252,000 and the fair value of $258,890 on 31st December.

Gain/(loss)=$258,890-$252,000=$6890 unrealized gain

The amount would be credited to unrealized gain/(loss) on AFS investments while Valuation Allowance for Available-for-Sale Investments would be debited with the same amount