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Prepare the adjusting entry to record bonds at fair value

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Reference no: EM132519753

Presented below is information taken from a bond investment amortization schedule with related fair values provided. These bonds are managed to profit from changes in market interest rates which determines the market price of the bonds.

                                      12/31/19                  12/31/20                 12/31/21

Amortized cost           €491,150                €519,442                  €550,000

Fair value                     497,000                509,000                  550,000

Instructions

Question a. Indicate whether the bonds were purchased at a discount or at a premium.

Question b. Prepare the adjusting entry to record the bonds at fair value at December 31, 2019. The Fair Value Adjustment account has a debit balance of €1,000 prior to adjustment.

Question c. Prepare the adjusting entry to record the bonds at fair value at December 31, 2020.

Question d. Repeat the requirements for (c), assuming the investments are held under a hold-for-collection and selling strategy.

Reference no: EM132519753

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