Based on your answer to question 1 prepare the journal entry to report the fair

Based on your answer to question 1 prepare the

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Based on your answer to question 1, prepare the journal entry to report the fair value adjustment of the security on July 1, 2016.The initial journal entry for the purchase of the bonds would be as follows:Purchase$Investment in Sherman bonds92,278Cash92,278The following shows the interest revenue as there is a semiannual interest due on July 1:Interest Revenue=InterestRate6months12monthsAmountInterest Revenue=0.086months12months$92,278=$3,691Interest$Cash3,691Interest Revenue 3,691These aforementioned journal entries are needed to keep track of the trading security. Essentially, for the adjusting journal entry, the trading security’s purchase price and the fair value price are needed in order to calculate the adjustment, whether it is a gain or a loss:FairValue Adjustment=Fair ValuePurchase PriceFairValue Adjustment=$94,800$92,278=$2,522(Gain)
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Therefore, the fair value adjustment would be as follows, which is reported on the income statement (I/S):Adjusting Entry$Fair Value Adjustment 2,522Net Realized Gain-I/S2,522
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