Question

Loreal-American Corporation purchased several marketable securities during 2021. At December 31, 2021, the company had the investments in bonds listed below. None was held at the last reporting date, December 31, 2020, and all are considered securities available-for-sale. Cost Fair Value Unrealized Holding Gain (Loss) Short term: Blair, Inc. $ 480,000 $ 405,000 $ (75,000 ) ANC Corporation 450,000 480,000 30,000 Totals $ 930,000 $ 885,000 $ (45,000 ) Long term: Drake Corporation $ 480,000 $ 560,000 $ 80,000 Aaron Industries 720,000 660,000 (60,000 ) Totals $ 1,200,000 $ 1,220,000 $ 20,000 Required: 1. Prepare appropriate adjusting entry at December 31, 2021. 2. What amount would be reported in the income statement at December 31, 2021, as a result of the adjusting entry

Answer 1

1. 31 Dec 2021

Dr Net unrealized holding gain/loss 25,000

Cr Fair value adjustment 25,000

2. None

Step-by-step explanation:

Preparation of Journal entry

First step is to calculate for the unrealized loss

Unrealized loss=Short term loss-Long term gain

Unrealized loss=45,000-20,000

Unrealized loss=25,000

Journal entry

31 Dec 2021

Dr Net unrealized holding gain/loss 25,000

Cr Fair value adjustment 25,000

(To record unrealized loss on available for sale securities)

2. No amount would be reported in the income statement at December 31, 2021 because the Net unrealized holding gain/loss will be reported in other comprehensive income .