For several years Fister Links Products has held Microsoft b

For several years Fister Links Products has held Microsoft bonds, considered by the company to be securities available-for-sale. The bonds were acquired at a cost of $500,000. At the end of 2018, their fair value was $610,000 and their amortized cost was $510,000. At the end of 2019, their fair value was $600,000 and their amortized cost was $520,000.

At what amount will the investment be reported in the December 31, 2019, balance sheet? What adjusting entry is required to accomplish this objective (ignore interest)?

(please explain how did you get the adjusting entry/ steps)

Solution

Step 1 :

As the bonds are considered by the company to be securities available-for-sale, the investment should be reported in each year end balance sheet at its fair value. Therefore in the December 31, 2019, balance sheet, the investment will be reported at the fair value of $600,000

Investment on December 31,2019 $600,000

Step 2 : Any change in value go into a special account which is called \"Unrealized gain/loss in other comprehensive income (OCI)\". which is located in stockholder\'s equity.

For reporting the investments at its fair value at each balance sheet date, an adjusting entry is required on each balance sheet date which is shown as follows:- (Amount in $)