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26 November, 03:05

Global Commerce Corporation purchased trading debt investments for $114,000 on December 31, 2018. There is a decrease of $5,800 in the fair value of the trading debt investments by the end of the year 2019. Which of the following is the correct journal entry?

A. Trading Debt Investments 5,800

Unrealized Holding

Loss-Trading 5,800

B. Fair Value

Adjustment-Trading 5,800

Unrealized Holding

Loss-Trading 5,800

C. Unrealized Holding

Loss-Trading 5.800

Retained Earnings 5,800

D. Unrealized Holding

Loss-Trading 5,800

Fair Value

Adjustment-Trading 5,800

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Answers (1)
  1. 26 November, 03:14
    0
    The correct option is D,

    Unrealized Holding Loss-Trading $5,800

    Fair Value Adjustment-Trading $5,800

    Explanation:

    The decrease in fair value by $5,800 means that the investment has potentially lost $5,800 in value which is credited to fair value adjustment while the debit is posted to unrealized holding loss-trading account.

    The loss cannot be realized in retained earnings since the loss is yet to be realized as the investment has not been sold for cash.

    The realized loss or gain would be determined when investment is sold for cash.
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