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Fair Value Adjustment – Dec. 31, 2019

Fair Value Adjustment – Dec. 31, 2019

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Available-for-Sale Debt Securities

Example: Portfolio of Securities



Webb Corporation has two debt securities classified as availablefor-sale. The following illustration identifies the amortized cost, fair

value, and the amount of the unrealized gain or loss.



LO 1



Copyright ©2019 John Wiley & Sons, Inc.



25



Portfolio of Securities



Prepare the adjusting entry Webb would make on December 31,

2020 to record the loss.

Unrealized Holding Gain or Loss—Equity

Fair Value Adjustment

LO 1



Copyright ©2017 John Wiley & Sons, Inc.



9,537

9,537

34



Sale of Available-for-Sale Securities

If company sells bonds before maturity date:

• It must make entries to remove from the Debt

Investments account the amortized cost of bonds

sold.

• Any realized gain or loss on sale is reported in the

“Other” section of the income statement.



LO 1



Copyright ©2019 John Wiley & Sons, Inc.



27



Sale of Available-for-Sale Securities

Illustration: Webb Corporation sold the Watson bonds on July

1, 2021, for $90,000, at which time it had an amortized cost of

$94,214.

Amortized cost (Watson bonds)

Less: Selling price of bonds

Loss on sale of bonds

Cash

Loss on Sale of Investments

Debt Investments

LO 1



$94,214

90,000

$ 4,214

90,000

4,214



Copyright ©2019 John Wiley & Sons, Inc.



94,214

28



Computation of Fair Value Adjustment

—Available for-Sale (2021)



Assuming no other purchases and sales of bonds in 2021,

Webb on December 31, 2021, prepares the information:



LO 1



Copyright ©2019 John Wiley & Sons, Inc.



29



Fair Value Adjustment – Dec. 31, 2021

Webb records the following at December 31, 2021.



Fair Value Adjustment

4,537

Unrealized Holding Gain or Loss—Equity

LO 1



Copyright ©2017 John Wiley & Sons, Inc.



4,537

34



Available-for-Sale Debt Securities

Financial Statement Presentation



LO 1



Copyright ©2019 John Wiley & Sons, Inc.



31



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Fair Value Adjustment – Dec. 31, 2019

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