Adjusting AFS Debt Securities to Fair Value A portfolio of investments of available-for-sale securities held by Dow Inc. is as follows. Cost Fair Value Dece. 31, Year 1 Eastern Corp. bonds $240,000 $256,000 Western Corp. bonds 400,000 410,000 Total $640,000 $666,000 Dece. 31, Year 2 Eastern Corp. bonds $240,000 Western Corp. bonds 400,000 Total $640,000 Cost Fair Value $280,000 380,000 $660,000 The Fair Value Adjustment account had a $0 balance on January 1 of Year 1. No sales or purchases took place in the available-for-sale investment portfolio in Year 1 and Year 2. a. Record the adjusting entry on December 31 of Year 1 to adjust the debt investments to fair value. b. Record the adjusting entry on December 31 of Year 2 to adjust the debt investments to fair value. Date a. Dec. 31, Year 1 b. Dec. 31, Year 2 Account Name To record adjusting entry. To record adjusting entry. Dr. Amount in income statement Cr. c. Indicate how the adjustment to fair value in (b) would be reported in Dow's income statement for the year ended December 31 of Year 2. • Note: Indicate a loss with a negative sign.

Adjusting AFS Debt Securities to Fair Value A portfolio of investments of available-for-sale securities held by Dow Inc. is as follows. Cost Fair Value Dece. 31, Year 1 Eastern Corp. bonds $240,000 $256,000 Western Corp. bonds 400,000 410,000 Total $640,000 $666,000 Dece. 31, Year 2 Eastern Corp. bonds $240,000 Western Corp. bonds 400,000 Total $640,000 Cost Fair Value $280,000 380,000 $660,000 The Fair Value Adjustment account had a $0 balance on January 1 of Year 1. No sales or purchases took place in the available-for-sale investment portfolio in Year 1 and Year 2. a. Record the adjusting entry on December 31 of Year 1 to adjust the debt investments to fair value. b. Record the adjusting entry on December 31 of Year 2 to adjust the debt investments to fair value. Date a. Dec. 31, Year 1 b. Dec. 31, Year 2 Account Name To record adjusting entry. To record adjusting entry. Dr. Amount in income statement Cr. c. Indicate how the adjustment to fair value in (b) would be reported in Dow's income statement for the year ended December 31 of Year 2. • Note: Indicate a loss with a negative sign.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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