Chapter 12 Day 1-3 - Brief Exercise 121(a Investment in...

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Brief Exercise 12–1 (a) Investment in bonds (face amount) ........................ 720,000 Discount on bond investment (difference) ......... 120,000 Cash (price of bonds) .......................................... 600,000 (b) Cash (1.5% x $720,000) .......................................... 10,800 Discount on bond investment (difference) ............. 1,200 Interest revenue (2% x $600,000) ....................... 12,000
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Brief Exercise 12–3 Unlike for trading securities, unrealized holding gains and losses for securities available-for-sale are not included in earnings. S&L reports its $2,000 holding loss in 2016 as other comprehensive income in the statement of comprehensive income. When the fair value rises to $880,000 in 2017, the amount reported in 2017 earnings is the $5,000 gain realized by the sale of the securities. S&L’s journal entries for these transactions would be: 2016 December 27 Investment in Coca Cola shares .......................................... 875,000 Cash .................................................................................. 875,000 December 31 Net unrealized holding gains and losses–OCI ..................... 2,000 Fair value adjustment ($875,000 – 873,000) ........................ 2,000 2017 January 3 Cash (selling price) .................................................................. 880,000 Gain on investments (to balance) ....................................... 5,000 Investment in Coca Cola shares (cost) .............................. 875,000 Assuming no other transactions involving securities available-for-sale, the 2017 adjusting entry to remove the fair value adjustment associated with the sold securities would be: December 31 Fair value adjustment (account balance) .................................. 2,000 Net unrealized holding gains and losses–OCI ................. 2,000
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Brief Exercise 12–5 These are securities available-for-sale and are reported at their fair value, $4,000,000. We know this because securities “held-to-maturity” are debt securities that an investor has the “positive intent and ability” to hold to maturity. Actively traded investments in debt or equity securities acquired principally for the purpose of selling them in the near term are classified as “trading securities.” The FedEx shares have been held for over a year.
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