Assignment for ACG3111This is the problem:The accounting records of Jamaican Importers, Inc., at January 1, 2018, included the following:Assets:Investments in IBM common shares                     1,845,000Less: Fair Value Adjustment                                    (195,000)                                                                                   1,650,000No changes occurred during 2018 in the investment portfolio.Prepare appropriate adjusting entries at Dec 31, 2018, assuming that the values of the common share were:1,315,000My question is if this problem is relating to an AFS security, the unrealized holding loss on AFS investment would be debited to OCI instead of NI.However, when I did my homework, it seems that the correct answer is unrealized holding loss on AFS investment - NI.  Could you tell me the explanation behind this answer, please?

Question
Asked Aug 29, 2019
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Assignment for ACG3111

This is the problem:

The accounting records of Jamaican Importers, Inc., at January 1, 2018, included the following:

Assets:

Investments in IBM common shares                     1,845,000

Less: Fair Value Adjustment                                    (195,000)

                                                                                   1,650,000

No changes occurred during 2018 in the investment portfolio.

Prepare appropriate adjusting entries at Dec 31, 2018, assuming that the values of the common share were:

1,315,000

My question is if this problem is relating to an AFS security, the unrealized holding loss on AFS investment would be debited to OCI instead of NI.

However, when I did my homework, it seems that the correct answer is unrealized holding loss on AFS investment - NI.  Could you tell me the explanation behind this answer, please?

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Expert Answer

Step 1

The securities are classified in three types

a) Held to maturity- 

b) Available for sale

c) Held for trading

Held to maturity securities are usually debt instruments which are held till their retirement. When securities are purchased, the management must classify them whether it is held for trade or available for sale. Held for trading securities are intended to be held for shorter period and they can be actively traded in the market. Available for sale securities are generally purchased with the intent ...

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