Question

On February 15, Jewel Company buys bonds of Marcelo Corp. for $200,000. The investment is classified as available-for-sale securities. This is the company's first and only investment in available-for-sale securities. On December 31, the bonds had a fair value of $200,300. The entry to record the year-end adjustment is:A. Debit Cash $300; credit Gain on Sale of Investments $300.B. Debit Cash $300; credit Dividend Revenue $300.C. Debit Fair Value Adjustment-Available-for-Sale $300; credit Realized Gain-Income $300.D. Debit Fair Value Adjustment-Available-for-Sale $300; credit Unrealized Gain-Equity $300.E. Debit Fair Value Adjustment-Available-for-Sale $300; credit Interest Revenue $300.

Answer 1

Answer:

D. Debit Fair Value Adjustment-Available-for-Sale $300; credit Unrealized Gain-Equity $300

Explanation:

The journal entry to record the year-end adjustment is as follows

Fair Value Adjustment-Available-for-Sale $300 ($200,300 - $200,000)

            To Unrealized Gain-Equity $300

(Being year-end adjustment is recorded)

The available for sale securities would be at fair market value

Therefore the unrealized gain would be $300

hence, the correct option is d.