S&L Financial buys and sells securities expecting to earn profits on short-term differences in price. On December 27, 2021, S&L purchased Coca-Cola bonds at par for $881,000 and sold the bonds on January 3, 2022, for $887,500. At December 31, the bonds had a fair value of $876,000. Prepare journal entries to record (a) any unrealized gains or losses occurring in 2021 and (b) the sale of the bonds in 2022. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

ANSWER:
S&L Financials buys and sells securities expecting to earn profits on short term differences in price. On Dec 27, 2021 S&L purchased Coca Cola bonds at par for $875,000 and sold the bonds on Jan 3 2022 for $880,000. At Dec 31 the bonds had a fair value $873,000.

Part a December 31st 2021
Loss on investment (unrealized, NI) $2,000
Fair value adjustment $2,000
875,000-873,000 = 2,000

Part b January 3rd 2022
Fair value adjustment $7,000
Gain on investment (unrealized, NI) $7,000
880,000 - 873,000 = 7,000

Part c January 3rd 2022
Cash $880,000
Investment in Bonds $875,000
Fair value adjustment $5,000
880,000 - 875,000 = 5,000


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