At the beginning of 2018, Ace Company had the followingportfolio of investments in available-for-sale debt securities (allof which were acquired at par value):
Security | Cost | 1/1/2018 Fair Value |
| A | $20,000 | $25,000 |
| B | 30,000 | 29,000 |
| Totals | $50,000 | $54,000 |
During 2018, the following transactions occurred:
| May 3 | Purchased C debt securities at their par value for$50,000. |
| July 1 | Sold all of the A securities for $25,000 plus interest of$1,000. |
| Dec. 31 | Received interest of $7,600 on the B and C securities.Additionally the following information was available: |
Security | 12/31/18 Fair Value |
| B | $29,000 |
| C | 52,500 |
Required:
| 1. | Prepare journal entries to record the precedinginformation. |
| 2. | What is the balance in the Unrealized Holding Gain/Loss accounton December 31, 2018? |
| 3. What justification does the FASB give for its treatment ofunrealized holding gains and losses for available-for-salesecurities? FASB requires unrealized gains and losses for available-for-salesecurities to be reported as a component of other comprehensiveincome because: | I | Reporting unrealized gains and losses in income foravailable-for-sale securities would create unnecessary volatilityin a company's reported net income. | | II | The securities are actively managed making the inclusion ofgains and losses irrelevant. |
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