Awesome Accounting Students (AAS) Incorporated disclosed the following information in Footnote 9 of their most recent annual
Question:
Awesome Accounting Students (AAS) Incorporated disclosed the following information in Footnote 9 of their most recent annual report.
December 31, 2020 | ||||
$ in millions | Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
Corporate debt investments | $4,500 | $15 | $16 | $4,499 |
Investment in Governmental Debt | 2,010 | 24 | 1,986 | |
Financial institution Instruments | 3,200 | 980 | 230 | 3,950 |
Total AFS Investments | $9,710 | $995 | $270 | $10,435 |
December 31, 2019 | ||||
$ in millions | Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
Corporate debt investments | $4,800 | $3 | $10 | $4,793 |
Investment in Governmental Debt | 5,450 | 60 | 5,390 | |
Financial institution Instruments | 4,650 | 1,026 | 125 | 5,551 |
Total AFS Investments | $14,900 | $1,029 | $195 | $15,734 |
AAS indicates the following: “During 2020, we sold available-for-sale investments. . . The gross realized gains on sales of available-for-sale investments were $970 million in 2020. AAS’s Note 17 (Other Comprehensive Income) indicates unrealized holding gains of $855 million during 2020, and a reclassification adjustment of $970 for gains that had previously been included in OCI and recorded in the fair value adjustment but which were now being included in net income after being realized upon sale.
Required:
1. Prepare a T-account that shows the change between the December 31, 2019, and December 31, 2020, balances for the fair value adjustment associated with AAS’s AFS Investments. Also, indicate how much did the fair value adjustment change during 2020?
2. Prepare a journal entry that records any unrealized holding gains and losses that occurred during 2020. Ignore income taxes.
3. Prepare a journal entry that records any reclassification adjustment for available-for-sale investments sold during 2020. Ignore income taxes.
4. Using your journal entries from requirements 2 and 3, adjust your T-account from requirement 1. Have you accounted for the entire change in the fair value adjustment that occurred during 2020? If not, what is one possible explanation?
Expert Answer:
TAccount for Fair Value Adjustment Debit Credit Dec 31 2019 1029M 2020 sales 970M OCI 855M ... View the full answer
