Problem 12–5 (continued)
2) Recording the sale transaction:
Cash (proceeds)…………………………………………………….. 425,000
November 1
Problem 12–5 (continued)
December 31
Adjusting entries:
Accruing interest for American Instruments bonds:
Accruing interest for M&D bonds:
Accumulated
Unrealized
Available-for-Sale Securities Cost Fair Value Gain (Loss)
$10,000*
Need to move from a fair-value adjustment of $0 to $10,000:
Fair-Value
Adjustment
1/1/2018 0
Fair value adjustment (calculated above)……………………. 10,000
Fair Value
Adjustment
Balance on 1/1/2018 $0
± Adjustment needed to update fair value ?
Balance needed on 12/31/2018 $10,000
Problem 12–5 (concluded)
Requirement 2
Income statement:
Investment revenue ($16,000 + 30,000 + 14,000) $ 60,000
Statement of comprehensive income:
Balance sheet:
Current Assets
Interest receivable $
Shareholders’ Equity
Problem 12–6
Requirement 1
2018
March 31
September 1
September 30
October 2
1) Update the fair-value adjustment:
Need to move from a fair-value adjustment from $0 to $25,000:
Fair-Value
Adjustment
Initial 0
Fair Value
Adjustment
Initial balance $ 0
± Adjustment needed to update fair value ?
3) Record the sale transaction:
Note: the gain included in NI equals the difference between the proceeds
($425,000) and the carrying value of the investment ($400,000). It also equals the
amount of unrealized gain that had accumulated in AOCI and was removed from
AOCI with the reclassification adjustment.
November 1
Problem 12–6 (continued)
December 31
Adjusting entries:
Accruing interest for American Instruments bonds:
Accruing interest for M&D bonds:
Accumulated
Unrealized
Available-for-Sale Securities Cost Fair Value Gain (Loss)
$10,000*
Need to move from a fair-value adjustment of $0 to $10,000:
Fair-Value
Adjustment
1/1/2018 0
Unrealized holding gain—OCI…………………………..
10,000
Fair Value
Adjustment
Balance on 1/1/2018 $0
± Adjustment needed to update fair value ?
Balance needed on 12/31/2018 $10,000
Problem 12–6 (concluded)
Requirement 2
Income statement:
Net income ……………………………………..
$85,000
Note: Unlike for trading securities, unrealized holding gains and losses are not included in
income for securities available-for-sale.
Statement of comprehensive income:
Balance sheet:
Current Assets
Interest receivable $
44,000
$2,310,000
Shareholders’ Equity
Retained Earnings $
85,000
Accumulated other comprehensive income
Problem 12–7
Requirement 1
2018
March 31
September 1
September 31
October 2
1) Updating the fair-value adjustment:
Need to move from a fair-value adjustment of $0 to $25,000:
Fair-Value
Adjustment
3/31/2018 0
Fair Value
Adjustment
Balance on 3/31/2018 $0
± Adjustment needed to update fair value ?
Balance needed on 10/2/2018 ($425,000 – 400,000) $25,000
2) Recording the sale transaction:
November 1