SL Financial buys and sells securities which it classifies a

S&L Financial buys and sells securities which it classifies as available-for-sale. On December 27, 2018, S&L purchased Coca-Cola bonds at par for $884,000 and sold the bonds on January 3, 2019, for $890,000. At December 31, the bonds had a fair value of $881,000, and S&L has the intent and ability to hold the investment until fair value recovers.

Prepare journal entries to record (a) any unrealized gains or losses occurring in 2018 and (b) the sale of the bonds in 2019, including recognition of any unrealized gains in 2019 prior to sale and reclassification of amounts out of OCI.

Solution

Answer a Journal Entries Date Account Titles Debit Credit Dec.27,2018 Available for sale Securities (Coca Cola Bonds) $884,000 Cash $884,000 (recording of purchase of bonds) Dec.31,2018 Unrealised Gain/loss - Other Comprehensive Income $3,000 Available for sale Securities (Coca Cola Bonds) $3,000 (recording of $3000 decrease in value of Coca Cola bonds) Answer b Journal Entries Date Account Titles Debit Credit Jan.3,2019 Cash $890,000 Available for sale Securities (Coca Cola Bonds) $881,000 Unrealised Gain/loss - Other Comprehensive Income $3,000 Realised Gain on available for sale securities $6,000 (recording of sale of coca cola bonds and Realised gain)