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 $892,000 and sold the bonds on January 3, 2019, for $900,000. At December 31, the bonds had a fair value of $885,000, 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. (If no entry is required for a transaction/event, select \"No journal entry required\" in the first account field.)

1.Record the entry for Fair value adjustment of December 31, 2018.

2.Record the entry to adjust to fair value on the date of sale.

3.Record the entry to reverse the previous fair value adjustment.

Solution

Date Account Titles and Explanation Debit Credit Dec 31,2018 Unrealised gain/loss- OCI 7000 Available for sale Debt- Securities 7000 [To record decrease in the value of the debt bond ] (892000-885000) Jan 3,2019 No entry required Jan 3,2019 Cash 900000 Available for sale Debt- Securities 885000 Realised Gain on available for sale debt securities 8000 Unrealised gain/loss- OCI 7000 [To record sale of securities]