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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Available-for-Sale Securities

Tolland Financial began operators in 2020 and invests in securities classified as available-for- sale. During 2020, it entered into the following available-for-sale security transactions:

Purchased debt securities of DTR for $500,000 Purchased debt securities of MJO for $968,000

At December 31, 2020, the DTR debt securities were trading at $520,000 and the MJO debt securities are trading for 5950,000.

Required:

1. Prepare the necessary adjusting entry to value the available-for-sale securities at fair market value.

2. CONCEPTUAL CONNECTION What is the income statement effect of this adjusting entry?

To determine

(a)

Introduction:

Investment in debt security (available for sale securities and trading securities) as well as equity securities is recorded using Fair Value Method.

To record:

Journal entry to record securities at fair value.

Explanation
Securities Acquisition Cost (1) Fair Value at Dec 31, 2020 (2) Difference [(2) − (1)]
DTR $500,0...
To determine

(b)

Introduction:

Investment in debt security (available for sale securities and trading securities) as well as equity securities is recorded using Fair Value Method.

To explain:

The effect of adjusting entry on Income Statement.

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