Question

Antique Company has notes receivable that have a fair value of $920,000 and a carrying amount of $710,000. Antique decides on December 31, 2014, to use the fair value option for these recently-acquired receivables. The adjusting entry to record this change will include a:a. debit to Unrealized Holding Gain or Loss⎯Income for $210,000.b. credit to Notes Receivable for $210,000.c. credit to Unrealized Holding Gain or Loss⎯Income for $210,000.d. debit to Notes Receivable for $920,000.

Answer 1

Answer:

c. credit to Unrealized Holding Gain or Loss⎯Income for $210,000.

Explanation:

We know that the notes receivable have a debit balance as it is shown on the assets side under the balance sheet.

Since the fair value of the notes receivable is $920,000 and its carrying value is $710,000 so, the difference would be $210,000 ($920,000 - $710,000) as in the given question, it is said that the fair value option is to be used. So, we take the difference of both the amounts.  

Moreover, the notes receivable balance is increased by $210,000 so we debited it and credit the Unrealized Holding Gain or Loss⎯Income

And, the journal entry would be  

Notes receivable A/c Dr $210,000

     To unrealized holding gain or loss - income $210,000

(Being gain or loss adjusted)