Ch17 Reviewed

Investments
Investments
Investments in
Debt Securities
Investments in
Equity Securities
Other Reporting
Issues
Held-to-maturity
securities
Holdings of less than

20%
Fair value option
Available-for-sale
securities
Holdings between 20%

and 50%
Reclassification
adjustments
Trading securities
Holdings of more than

50%
Impairment of value
Investment
Investment Accounting
Accounting Approaches
Approaches
Different motivations for investing:
To earn a high rate of return.
To secure certain operating or financing arrangements

with another company.
Investment
Investment Accounting
Accounting Approaches
Approaches
Companies account for investments based on:
the type of security (debt or equity)
their intent with respect to the investment.
Investments
Investments in
in Debt
Debt Securities
Securities
Debt securities (creditor relationship):
Type
U.S. government
securities
Municipal securities
Corporate bonds
Convertible debt
Commercial paper
Accounting Category
Held-to-maturity
Trading
Available-for-sale
Investments
Investments in
in Debt
Debt Securities
Securities
Accounting for Debt Securities by Category
Held-to-Maturity
Held-to-Maturity Securities
Securities
Classify a debt security as held-to-maturity only if it has
both
(1) the positive intent and
(2) the ability to hold securities to maturity.
Accounted for at amortized cost, not fair value.
Amortize premium or discount using the effective-interest
method unless the straight-line method yields a similar
result.
Held-to-Maturity
Securities
Robinson Company purchased $100,000 of 8 percent bonds
of Evermaster Corporation on January 1, 2015, at a discount,
paying $92,278. The bonds mature January 1, 2020 and yield
10%; interest is payable each July 1 and January 1. Robinson
records the investment as follows:
January 1, 2015
Debt investments
Cash
92,278
92,278
Held-to-Maturity
Securities
Date
1/1/2015
7/1/2015
1/1/2016
7/1/2016
1/1/2017
7/1/2017
1/1/2018
7/1/2018
1/1/2019
7/1/2019
1/1/2020
Effective Interest Calculation

8% bond, 10% yield, 100,000 face, semi-annual
Disc.
Cash Rec'v
Interest Rev
Amortization Carrying Amt.
92,278.27
4,000.00
4,613.91
613.91
92,892.18
4,000.00
4,644.61
644.61
93,536.79
4,000.00
4,676.84
676.84
94,213.63
4,000.00
4,710.68
710.68
94,924.31
4,000.00
4,746.22
746.22
95,670.52
4,000.00
4,783.53
783.53
96,454.05
4,000.00
4,822.70
822.70
97,276.75
4,000.00
4,863.84
863.84
98,140.59
4,000.00
4,907.03
907.03
99,047.62
4,000.00
4,952.38
952.38
100,000.00
40,000.00
47,721.73
7,721.73
100,000.00
LO 2
Held-to-Maturity
Securities
Robinson Company records the receipt of the first semiannual
interest payment on July 1, 2015, as follows:
Cash 4,000
Debt Investments 614
Interest Revenue
4,614
Held-to-Maturity
Securities
Robinson is on a calendar-year basis, it accrues interest and
amortizes the discount at December 31, 2015, as follows:
Interest Receivable
4,000

Interest Revenue
4,645
Held-to-Maturity
Securities
Assume that Robinson Company sells its investment in
Evermaster bonds on November 1, 2019, at 99 plus accrued
interest. Robinson records this discount amortization as
follows:

Interest Revenue
$952 x 4/6 = $635
635
Held-to-Maturity
Securities
Computation of gain on sale of bonds
Selling price of bonds
Less: Book Value of Bonds on 11/1/19
Amortized cost 7/1/19
Add: Discount amortized from 7/1 - 11/1/19
99,750.00
99,048.00
635.00
Gain on Sale of Bonds
Cash
99,683.00
67.00
102,417 (= 99750+2667)
Interest Revenue (4/6 x $4,000)

Debt Investments
2,667
99,683
Gain on Sale of Securities
67
LO 2
YOU TRY #1
Skateboarding Peeps, LLP, purchased 50,000 of 10% bonds from Hot Rod
Peeps on January 1, 2015, at a discount, paying 46,319.96.
The bonds mature on 1/1/2020, and yield 12% interest, payable semi-annually
on January and July 1.
Record the investment, create the effective interest rate schedule and record the
receipt of the first payment (July 1, 2015)
Debt Investment
Cash
46,319.96
Cash
Debt Investment
Interest Revenue
2,500.00
279.20
46,319.96
2,779.20
Date
1/1/2015
7/1/2015
1/1/2016
7/1/2016
1/1/2017
7/1/2017
1/1/2018
7/1/2018
1/1/2019
7/1/2019
1/1/2020
Cash Rec'v
2,500.00
2,500.00
2,500.00
2,500.00
2,500.00
2,500.00
2,500.00
2,500.00
2,500.00
2,500.00
25,000.00
Interest Rev
2,779.20
2,795.95
2,813.71
2,832.53
2,852.48
2,873.63
2,896.05
2,919.81
2,945.00
2,971.70
28,680.04
Disc. Amortization
279.20
295.95
313.71
332.53
352.48
373.63
396.05
419.81
445.00
471.70
3,680.04
Carrying Amt.
46,319.96
46,599.15
46,895.10
47,208.81
47,541.34
47,893.82
48,267.45
48,663.49
49,083.30
49,528.30
50,000.00
50,000.00
YT #1, CONT.
Now presume Skateboard Peeps sells its investment in Hot Rod at
99.5, plus accrued interest on October 1, 2019.
Record the discount and the sale.
YT# 1 CONCLUSION
Selling Price of Bonds (50K x.995)
49,750.00
Less: Book Value of Bonds on 10/1/19

Amortized cost 7/1/19
Discount 7/1 to 10/1 (471.70 * (3/6))
49,528.30
235.85
Loss on Sale of Bonds

Cash
Loss on Sale
49,764.15
(14.15)
51,000.00
14.15
Debt Investment (49,528.30 235.85)
49,764.15
Interest Revenue (2,500 x (3/6))
1,250.00
51,014.15
51,014.15
Available-for-Sale
Available-for-Sale Securities
Securities
Debt
Securities
Companies report available-for-sale securities at
fair value, with
unrealized holding gains and losses reported as part

of comprehensive income (equity).
Any discount or premium is amortized.
Available-for-Sale
Securities
Debt
Securities
Graff Corporation purchases $100,000, 10 percent, five-year

bonds on January 1, 2015, with interest payable on July 1 and
January 1. The bonds sell for $108,110.90, which results in a
bond premium of $8,110.90 and an effective interest rate of 8
percent. Graff records the purchase of the bonds on January 1,
2015, as follows.
Debt Investments 108,110.90

Cash
108,110.90
Debt
Securities
Available-for-Sale
Securities
Date
1/1/2015
7/1/2015
1/1/2016
7/1/2016
1/1/2017
7/1/2017
1/1/2018
7/1/2018
1/1/2019
7/1/2019
1/1/2020
Cash Rec'v
5,000.00
5,000.00
5,000.00
5,000.00
5,000.00
5,000.00
5,000.00
5,000.00
5,000.00
5,000.00
50,000.00
Interest Rev
4,324.44
4,297.41
4,269.31
4,240.08
4,209.69
4,178.07
4,145.20
4,111.00
4,075.44
4,038.46
41,889.10
Disc.
Amortization
675.56
702.59
730.69
759.92
790.31
821.93
854.80
889.00
924.56
961.54
8,110.90
Carrying Amt.
108,110.90
107,435.33
106,732.74
106,002.05
105,242.14
104,451.82
103,629.89
102,775.09
101,886.09
100,961.54
100,000.00
100,000.00
Available-for-Sale
Securities
Debt
Securities
Illustration (Single Security): The entry to record interest

revenue on July 1, 2015, is as follows.
Cash 5,000
Debt Investments
676
Interest Revenue
4,324
LO 2 Understand the procedures for discount and

premium amortization on bond investments.
Available-for-Sale
Securities
Debt
Securities
At December 31, 2015, Graff makes the following entry to

recognize interest revenue.
Interest Receivable
5,000
Debt Investments
703
Interest Revenue
4,297
Graff reports revenue of $8,621 for 2015 ($4,324 + $4,297).
Debt
Securities
Available-for-Sale
Securities
To apply the fair value method to these debt securities, assume

that at year-end the fair value of the bonds is $105,000 and that
the carrying amount of the investments is $106,732.
makes the following entry.
Unrealized Holding Gain or LossEquity
Fair Value Adjustment (AFS)
1,732
1,732
Graff
Debt
Securities
Available-for-Sale
Securities
Webb Corporation has two debt securities classified as

available-for-sale.
The
following
illustration
identifies
the
amortized cost, fair value, and the amount of the unrealized gain
or loss.
Investments
Watson Corp 8% Bonds
Anacomp Corp 10% Bonds
Total
Balance in FV adjustment account
FV Adjustment (Credit)
AFS Debt Security Portfolio

12/31/2016
Amortized Cost
Fair Value
93,537.00
103,600.00
200,000.00
180,400.00
293,537.00
284,000.00
UR Gain/Loss
10,063.00
(19,600.00)
(9,537.00)
(9,537.00)
Debt
Securities
Available-for-Sale
Securities
Webb makes an adjusting entry to a valuation allowance on

December 31, 2016 to record the decrease in value and to
record the loss as follows.
9,537
9,537
Webb reports the unrealized holding loss of $9,537 as other

comprehensive income and a reduction of stockholders equity.
PETER COTTONTAIL
In his first year in business, Peter Cottontail Enterprises has 3 debt securities
classified as AFS. The following details these holdings:
Investment
Amortized Cost
Hippity Hop Happenings
250,000.00
Chickadee Cheesy poufs
165,000.00
Jelly Bean Jungle
97,000.00
Total
512,000.00
Balance in the FV Adjustment Account (AFS)
Fair Value
261,000.00
158,000.00
98,000.00
517,000.00
What does Peter's adjustment look like?

Where does it appear in his financial statements?
UR Gain/Loss
11,000.00
(7,000.00)
1,000.00
5,000.00
2,500.00
PETER, CONCLUDED
FV Adjustment (AFS)
Unrealized Holding Gain (Equity)
2,500.00
2,500.00
Available-for-Sale
Securities
Debt
Securities
Sale of Available-for-Sale Securities

If company sells bonds before maturity date:
Must make entry to remove the,
Cost in Available-for-Sale Securities and
Securities Fair Value Adjustment accounts.
Any realized gain or loss on sale is reported in the

Other expenses and losses section of the income
statement.
Available-for-Sale
Securities
Debt
Securities
Webb Corporation sold the Watson bonds on July 1, 2017, for

$90,000, at which time it had an amortized cost of $94,214.
Cash 90,000
Loss on Sale of Investments 4,214
Debt Investments
94,214
Available-for-Sale
Securities
Debt
Securities
Webb reports this realized loss in the Other expenses and

losses section of Other Comprehensive Income. Assuming no
other purchases and sales of bonds in 2017, Webb on
December 31, 2017, prepares the information:
12/31/2017
Investments
Amortized Cost
Fair Value
UR Gain/Loss
200,000.00
195,000.00
(5,000.00)
Total
200,000.00
195,000.00
(5,000.00)

FV Adjustment (Debit)
(9,537.00)
4,537.00
Debt
Securities
Available-for-Sale
Securities
Webb records the following at December 31, 2017.

Investments
12/31/2017
Amortized Cost
Fair Value
UR Gain/Loss
200,000.00
195,000.00
(5,000.00)
Total
200,000.00
195,000.00
(5,000.00)
(9,537.00)
4,537.00
Fair Value Adjustment (AFS) 4,537

4,537
Trading
Trading Securities
Securities
Debt
Securities
Companies report trading securities at
fair value, with
unrealized holding gains and losses reported as part

of net income.
Any discount or premium is amortized.
Trading
Trading Securities
Securities
Debt
Securities
On December 31, 2015, Western Publishing Corporation

determined its trading securities portfolio to be as follows:
TS Debt Security Portfolio

12/31/2015
Investments
Burlington North 10% bonds
Amortized Cost
Fair Value
UR Gain/Loss
43,860.00
51,500.00
7,640.00
GM Corp. 11% bonds
184,230.00
175,200.00
(9,030.00)
Time Warner 8% bonds
86,360.00
91,500.00
5,140.00
Total
43,860.00
51,500.00
3,750.00

3,750.00
Debt
Securities
Trading
Trading Securities
Securities
At December 31, Western Publishing makes an adjusting entry:

TS Debt Security Portfolio
12/31/2015
Investments
Burlington North 10% bonds
Amortized Cost
Fair Value
UR Gain/Loss
43,860.00
51,500.00
7,640.00
GM Corp. 11% bonds
184,230.00
175,200.00
(9,030.00)
Time Warner 8% bonds
86,360.00
91,500.00
5,140.00
Total
43,860.00
51,500.00
3,750.00
3,750.00
Fair Value Adjustment (Trading) 3,750

Unrealized Holding Gain or LossIncome
3,750
Trading
Trading Securities
Securities
Debt
Securities
Hendricks Corporation purchased trading investment bonds for

$50,000 at par. At December 31, Hendricks received annual
interest of $2,000, and the fair value of the bonds was $47,400.
(a) Prepare the journal entry for the purchase of the
investment.
(b) Prepare the journal entry for the interest received.
(c) Prepare the journal entry for the fair value adjustment.
Trading
Trading Securities
Securities
Debt
Securities
Prepare the journal entries for (a) the purchase of the investment,
(b) the interest received, and (c) the fair value adjustment.
(a)
Debt investments 50,000

Cash 50,000
(b)
Cash 2,000
Interest revenue 2,000
(c)
Unrealized Holding Loss - Income
2,600
Fair Value Adjustment (Trading) 2,600
Investments
Investments in
in Equity
Equity Securities
Securities
Represent ownership of capital stock.
Cost includes:
price of the security, plus
brokers commissions and fees related to purchase.
The degree to which one corporation (investor) acquires an

interest in the common stock of another corporation (investee)
generally determines the accounting treatment for the investment
subsequent to acquisition.
Investments
Investments in
in Equity
Equity Securities
Securities
Ownership
Ownership Percentages
Percentages
0 ------------------20% ---------------- 50% ---------------100%

No significant
influence
usually exists
Significant
influence
usually exists
Investment
valued using
Fair Value
Method
Investment
valued using
Equity
Method
Control usually
exists
Investment valued on
parents books using Cost
Method or Equity Method
(investment eliminated in
Consolidation)
Investments
Investments in
in Equity
Equity Securities
Securities
Accounting and Reporting for Equity Securities by Category
Holdings
Holdings of
of Less
Less Than
Than 20%
20%
Upon acquisition, companies record available-for-sale securities
at cost.
On November 3, 2015 Republic Corporation purchased common
stock of three companies, each investment representing less than
a 20 percent interest.
Northwest Industries, Inc.

Campbell Soup Co.
St. Regis Pulp Co.
Cost
$ 259,700.00
317,500.00
141,350.00
$ 718,550.00
Holdings
Holdings of
of Less
Less Than
Than 20%
20%
Republic records these investments on November 3, 2015, as
follows.
Equity Investments
Cash
718,550
718,550
On December 6, 2015, Republic receives a cash dividend of

$4,200 from Campbell Soup Co.
Cash 4,200
Dividend revenue
4,200
Holdings
Holdings of
of Less
Less Than
Than 20%
20%
Republics available-for-sale equity security portfolio on December 31, 2015:
Cost
Northwest Industries, Inc.
Fair Value
Unrealized G/L
259,700.00 $
275,000.00 $
Campbell Soup Co.
317,500.00
304,000.00
(13,500.00)
St. Regis Pulp Co.
141,350.00
104,000.00
(37,350.00)
718,550.00 $
683,000.00 $
(35,550.00)
$
Previous FV Adjustment Bal.
FV Adjustment - CR:
15,300.00
(35,550.00)
Holdings
Holdings of
of Less
Less Than
Than 20%
20%
On December 31, 2015, Republic records the net unrealized
gains and losses related to changes in the fair value of availablefor-sale equity securities in an Unrealized Holding Gain or Loss
Equity account.
35,550
35,550
Holdings
Holdings of
of Less
Less Than
Than 20%
20%
On January 23, 2016, Republic sold all of its Northwest
Industries, Inc. common stock receiving net proceeds of
$287,220.
Net Proceeds from Sale

Cost of Northwest Stock
Gain on Sale
287,220.00
259,700.00
27,520.00
Cash
Equity Investment - AFS
FV Adjustment - AFS
Gain on Sale
287,220.00
275,000.00
15,300.00
27,520.00
Holdings
Holdings of
of Less
Less Than
Than 20%
20%
On February 10, 2016, Republic purchased 20,000 shares of
Continental Trucking at a price of $12.75 per share plus
brokerage commissions of $1,850 (total cost, $256,850).
Continental Trucking
Campbell Soup Co.
St. Regis Pulp Co.
$
Previous FV Adjustment Bal. - CR
FV Adjustment - DR:
Cost
Fair Value
Unrealized G/L
256,850.00 $
278,350.00
21,500.00
317,500.00
362,550.00
45,050.00
141,350.00
139,050.00
(2,300.00)
715,700.00 $
779,950.00 $
64,250.00
(50,850.00)
115,100.00
Holdings
Holdings of
of Less
Less Than
Than 20%
20%
Cost
Continental Trucking
Campbell Soup Co.
St. Regis Pulp Co.

$
Fair Value
Unrealized G/L
256,850.00 $
278,350.00
21,500.00
317,500.00
362,550.00
45,050.00
141,350.00
715,700.00 $
139,050.00
779,950.00 $
Previous FV Adjustment Bal. - CR

FV Adjustment - DR:
FV Adjustment - AFS
Unrealized Holding G/L - Equity
(2,300.00)
64,250.00
(50,850.00)
115,100.00
115,100.00
115,100.00
Note: Ending Balance in FV Adjustment account = (50,850) +115,100 =

64,250.00
-35,550 - 15,300 = -50,850
Holdings
Holdings of
of Less
Less Than
Than 20%
20%
McElroy Company has the following portfolio of securities at
September 30, 2015, its last reporting date.
Date
Trading Securities
Event
Cost
FV 9/30/15 12/31/15 FV
9/30/2015Horton (5,000 c)
215,000.00 200,000.00
N/A
9/30/2015Monty (3,500 p)
133,000.00 140,000.00
106,000.00
9/30/2015Oakwood (1,000 c)
180,000.00 179,000.00
193,000.00
270,000.00
N/A
10/10/2015Horton (5,000 c)
11/2/2015Patriot (3,000 c)
Sales = 54.00 per share

Purchase = 54.50 per
share
163,500.00
132,000.00
Holdings
Holdings of
of Less
Less Than
Than 20%
20%
Prepare the journal entries to record the sale, purchase, and
adjusting entries related to the trading securities in the last
quarter of 2015.
Portfolio at September 30, 2015
Date
Trading Securities
Cost
FV 9/30/15
Unrealized G/L
9/30/2015
Horton (5,000 c)
215,000.00
200,000.00
(15,000.00)
9/30/2015
Monty (3,500 p)
133,000.00
140,000.00
7,000.00
9/30/2015
Oakwood (1,000 c)
180,000.00
179,000.00
(1,000.00)
528,000.00
519,000.00
(9,000.00)
Total
Previous FV adjustment balance
FV adjustment - CR
(9,000.00)
Holdings
Holdings of
of Less
Less Than
Than 20%
20%
Prepare the journal entries to record the sale, purchase, and
adjusting entries related to the trading securities in the last
quarter of 2015.
10/10/15 - Horton
Cash
FV Adjustment - IS
Equity Investment
Gain on Sale
11/2/15 - Patriot
Equity Investment
Cash
270,000.00
15,000.00
200,000.00
85,000.00
163,500.00
163,500.00
Holdings
Holdings of
of Less
Less Than
Than 20%
20%
Date
Trading Securities
Cost
12/31/15 FV
Unrealized G/L
9/30/2015
Monty (3,500 p)
133,000.00
106,000.00
(27,000.00)
9/30/2015
Oakwood (1,000 c)
180,000.00
193,000.00
13,000.00
11/2/2015
Patriot (3,000 c)
163,500.00
132,000.00
(31,500.00)
(45,500.00)
Previous Balance FV Adjustment (-9,000 + 15,000)
6,000.00
(51,500.00)
Unrealized Holding Loss - IS

FV adjustment TS
51,500.00
51,500.00
Holdings
Holdings of
of Less
Less Than
Than 20%
20%
How would the entries change if the securities were classified as
available-for-sale?
The entries would be the same except that the
Unrealized Holding Gain or LossEquity account is used

instead of Unrealized Holding Gain or LossIncome.
The unrealized holding loss would be deducted from the

stockholders equity section rather than charged to the
income statement.
Holdings
Holdings Between
Between 20%
20% and
and 50%
50%
An investment (direct or indirect) of 20 percent or more of the
voting stock of an investee should lead to a presumption that
in the absence of evidence to the contrary, an investor has the
ability to exercise significant influence over an investee.
In instances of significant influence, the investor must
account for the investment using the equity method.
Holdings
Holdings Between
Between 20%
20% and
and 50%
50%
Equity Method
Record the investment at cost and subsequently adjust
the amount each period for
the investors proportionate share of the earnings

(losses) and
dividends received by the investor.
Holdings
Holdings Between
Between 20%
20%and
and 50%:
50%: Equity
Equity Method
Method
On January 1, 2015, Meredith Corporation purchased 25% of the
common shares of Pirates Company for $200,000. During the
year, Pirates earned net income of $80,000 and paid dividends of
$20,000.
Prepare the entries for Meredith to record the purchase and any
additional entries related to this investment in Pirates Company
in 2015.
Holdings
Holdings Between
Between 20%
20% and
and 50%
50%
Prepare the entries for Meredith to record the purchase and any
additional entries related to this investment in Pirates Company in
2015.
Equity Investment - Pirates
200,000.00
Cash
200,000.00
Purchase

Investment Revenue
20,000.00
($80,000 x 25%)
20,000.00
Income
Cash
Dividends
5,000.00
5,000.00
YT3: EQUITY METHOD

On January 1, 2016, Lori's Lilies purchases 30% of the outstanding
common stock of Olivia's Orchids for 450,000.
During the year, Olivia earns 200,000 in net income and pays
dividends of 60,000.
Prepare the entries for Lori's Lilies to record purchase and any
additional entries needed.
Determine the carrying value on Lori's books for Olivia on 12/31/16.
YT #3, CONCLUDED
1/1/2016
Equity Investment - Orchids
Cash
450,000.00
12/31/2016
Cash
18,000.00

Investment Revenue
450,000.00
18,000.00
60,000.00
60,000.00
450,000.00
18,000.00
60,000.00
492,000.00
Holdings
Holdings of
of More
More Than
Than 50%
50%
Controlling Interest - When one corporation acquires a
voting interest of more than 50 percent in another
corporation
Investor is referred to as the parent.
Investee is referred to as the subsidiary.
Investment in the subsidiary is reported on the parents

books as a long-term investment.
Parent generally prepares consolidated financial

statements.
Impairment
Impairment of
of Value
Value
Strickler Company holds available-for-sale bond securities with a
par value and amortized cost of $1 million. The fair value of these
securities is $800,000. Strickler has previously reported an
unrealized loss on these securities of $200,000 as part of other
comprehensive income. In evaluating the securities, Strickler now
determines that it probably will not collect all amounts due. It
records this impairment as follows.
Loss on impairment
200,000
Debt investments
200,000
Reclassification
Reclassification Adjustments
Adjustments
The reporting of changes in unrealized gains or losses in
comprehensive income is straightforward unless a company sells
securities during the year.
In that case, double counting results when the company reports
realized gains or losses as part of net income but also shows the
amounts as part of other comprehensive income in the current
period or in previous periods.
To ensure that gains and losses are not counted twice when a sale
occurs, a reclassification adjustment is necessary.
Transfers
Transfers Between
Between Categories
Categories
Illustration 17-30
* Assumes that adjusting entries to report changes in fair value for the current period are not yet
recorded.
Transfers
Transfers Between
Between Categories
Categories
Illustration 17-30
**According to GAAP, these types of transfers should be rare.

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Investments

Holdings of less than

Fair value option

Holdings between 20%

Holdings of more than

Different motivations for investing:

To earn a high rate of return.

To secure certain operating or financing arrangements

the type of security (debt or equity)

their intent with respect to the investment.

Effective Interest Calculation

Debt Investments 645

Debt Investments 635

$952 x 4/6 = $635

Gain on Sale of Bonds

Interest Revenue (4/6 x $4,000)

Gain on Sale of Securities

Less: Book Value of Bonds on 10/1/19

Loss on Sale of Bonds

Debt Investment (49,528.30 235.85)

Interest Revenue (2,500 x (3/6))

Companies report available-for-sale securities at

fair value, with

unrealized holding gains and losses reported as part

Graff Corporation purchases $100,000, 10 percent, five-year

Debt Investments 108,110.90

Illustration (Single Security): The entry to record interest

LO 2 Understand the procedures for discount and

At December 31, 2015, Graff makes the following entry to

Graff reports revenue of $8,621 for 2015 ($4,324 + $4,297).

To apply the fair value method to these debt securities, assume

Webb Corporation has two debt securities classified as

AFS Debt Security Portfolio

Webb makes an adjusting entry to a valuation allowance on

Webb reports the unrealized holding loss of $9,537 as other

What does Peter's adjustment look like?

Sale of Available-for-Sale Securities

Must make entry to remove the,

Cost in Available-for-Sale Securities and

Securities Fair Value Adjustment accounts.

Any realized gain or loss on sale is reported in the

Webb Corporation sold the Watson bonds on July 1, 2017, for

Webb reports this realized loss in the Other expenses and

Anacomp Corp 10% Bonds

Balance in FV adjustment account

AFS Debt Security Portfolio

Anacomp Corp 10% Bonds

Balance in FV adjustment account

Fair Value Adjustment (AFS) 4,537

Companies report trading securities at

fair value, with

unrealized holding gains and losses reported as part

Any discount or premium is amortized.

On December 31, 2015, Western Publishing Corporation

TS Debt Security Portfolio

GM Corp. 11% bonds

Time Warner 8% bonds

Balance in FV adjustment account

At December 31, Western Publishing makes an adjusting entry:

GM Corp. 11% bonds

Time Warner 8% bonds

Balance in FV adjustment account

Fair Value Adjustment (Trading) 3,750

Hendricks Corporation purchased trading investment bonds for