Chapter 12, Problem 12.13E

Classification of securities; adjusting entries

• LO12-4

On February 18, 2018, Union Corporation purchased 10,000 shares of IBM bonds as a long-term investment for $600,000. Union will hold the bonds indefinitely, and may sell them if their price increases sufficiently. On December 31, 2018, and December 31, 2019, the market value of the bonds was $580,000 and $610,000, respectively.

Required:

1. 1. What is the appropriate reporting category for this investment? Why?
2. 2. Prepare the adjusting entry for December 31, 2018.
3. 3. Prepare the adjusting entry for December 31, 2019.