reported trading investments at fair value of $225,000 on December 31,2016. Ther
ID: 2548697 • Letter: R
Question
reported trading investments at fair value of $225,000 on December 31,2016. There is a decrease of $6.000 in the fair value of the trading investments by the end of the year 2017. Which of the following is the cormect jourmal entry? A. Unrealized Holding Loss-Trading Trading Investments 6,000 O B. Unrealized Holding Loss-Trading Fair Value Adjustment-Trading 6,000 6,000 O C. Trading Investments Unrealized Holding Loss-Trading 6,000 Unrealized Holding Loss-Trading 6,000 Click to select your answer 8 4 5 2Explanation / Answer
1. In the first one, the value of Trading investments has come down by $6,000 which is an unrealized loss. This has come down the value of investments in the books booking an unrealized loss in the profit and loss account. Thus, the entry will be -
Unrealized loss on security A/c Dr. 6,000
To Trading investments A/c 6,000
(Being unrealized loss booked at the end of year)
Thus the answer is (A).
2. let us first understand what is bond payable and the discount. If a company issues a bond of Face value $100 at a price of 95 that means it has been called an issue of bonds on discount. The amount of discount here is $5. Further, on maturity the company has to pay $100 to the bond holders i.e. this $5 is loss for the company which will be written off to p&L account over the period of bond and Bonds payable will be shown as $100 in the balance sheet.
similarly in the given question, 95,000 is bond payable and 10,350 is discount on bonds payable. This 10,350 will be written off over the period on bond and will be shown in the balance sheet as contra liability account i.e. debit balance in the balance sheet and bonds payable will be shown in the liability side at 95,000. Thus the answer is C. i.e. Bonds payable at $95,000.
Let me know if any doubts.
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