Answer and Explanation:
The Journal entry is shown below:-
1. Debt Investment Dr, $344,260.74
To Cash $344,260.74
(Being cash paid is recorded)
2. Interest Receivable Dr, $38,400
To Debt Investment $3,973.93
To Interest Revenue $34,426.07
(Being interest received is recorded)
Fair Value Adjustment Dr, $1,713.19 ($342,000 -$340,286.81)
To Unrealized Holding Gain or Loss - Equity $1,713.19
(Being fair value adjustment is recorded)
3. Unrealized Holding Gain or Loss - Equity $7928.68
($335,915.49 - $329,700 + $1,713.19)
To Fair Value Adjustment 7,928.68
(Being unrealized loss or gain is recorded)
Working note
Book value of Interest Interest Amortization Book value
debt beginning Revenue Receivable (d = c - d) of debt
(a) b=(a × 10%) c at the end
($320,000 × 12%) (e - d)
$344,260.74 $34,426.07 $38,400 $3,973.93 $340,286.81
$340,286.81 $34,028.68 $38,400 $4,371.32 $335,915.49
