Q. 6SE_1 - Horngren'S Financial And Managerial Accounting

Question

Question: S10-6 Accounting for debt investments

On June 1, 2018, Josh’s Restaurant decides to invest excess cash of \(54,400 from the tourist season by purchasing a Jackrabbit, Inc. bond at face value. At year-end, December 31, 2018, Jackrabbit’s bond had a market value of \)51,200. The investment is categorized as an available-for-sale debt investment and will be held for the short-term. 

Requirements 

Journalize the transactions for Josh’s investment in Jackrabbit, Inc. for 2018. 

Step-by-Step Solution

Answer

Both sides of the journal totals $57,600.

Step 1: Definition of Available for Sale Investment

The investment made by the business entity in the security to sell them before they reach their maturity is known as available for sale investment.

Step 2: Journal Entry for Investment

Date	Accounts and Explanation	Debit $	Credit $
1 June 2018	Available for sale – Debt investment	$54,400
	Cash		$54,400
31 Dec 2018	Unrealized holding loss – Debt investment	$3,200
	Fair value adjustment – Debt investment		$3,200
		$57,600	$57,600