Since the Fair value is lower than the cost your T-account is as follows. Unrealized holding G&L – Income
So the journal entry would look like
Unrealized holding G&L –income statement $4200
Fair Value adjustment (trading) $4200
When this change is made for the measurement basis: Security transferred at fair value at the date of transfer, which is the new cost basis of the security. The impact it has on stockholders equity is the unrealized gain or loss at the date of transfer increases or decreases stockholders equity. The impact it has on net income is the unrealized gain or loss at the date of transfer is recognized in income. Situation 3-
An available-for-sale security whose fair value is less than cost is currently classified as noncurrent is not on a financial statement, but when it is reclassified as current it is on the income statement as unrealized holding G&L. Situation 4-
In this situation you will adjust the amount for appreciation. The entry will need to be corrected for the temporary impairment. Situation 5-
This would be similar to situation 1 with the journal entry
Unrealized holding G&L –income statement
Fair Value adjustment (trading)
A. The justification for valuing available-for-sale securities at fair value is it provides more relevant information for existing and prospective stockholders. B. The should accurately record the entries.
C. Yes that was correct.
D. The other entries needed for December 31 are:
Unrealized holding G&L Income