Answer:
a. See the table below.
b. Debit Fair value adjustment - Available-for-sale for $47,981; and Credi Unrealized gain - Debt for $47,981.
Explanation:
1. Identify whether each investment should be classified as a short-term or long-term investment. For each investment, indicate in which of the six investment classifications it should be placed.
This can be done as follows:
<u>No. Types of investment Classification of investment </u>
a. Long-term investment Debt investment held to maturity
b. Long-term investment Equity method investments 20%-50%
c. Long-term investment Available for sale dbt securities
d, Long-term investment Available for sale dbt securities
e. Short-term investment Stock investment <20%
2. Prepare a journal entry dated December 31 to record the fair value adjustment for the portfolio of available-for-sale debt securities. Carperk had no available-for-sale debt securities prior to this year.
The journal entries will look as follows:
<u>General Journal Debit ($) Credit ($) </u>
Fair value adjustment - Available-for-sale 47,981
Unrealized gain - Debt (w.1) 47,981
<em><u>(To record the fair value adjustment for the portfolio of available-for-sale debt securities). </u></em>
<u>Workings (w.1):</u>
No Fair Value ($) Cost ($) Gain (loss) ($)
A B C = A - B
a. 453,116 416,850 36,266
c. 184,240 170,909 13,331
d. <u> 93,426 </u> <u> 95,042 </u> <u> (1,616) </u>
Total <u> 730,782 </u> <u> 682,801 </u> <u> 47,981 </u>
