Wells Fargo bought 7% of Russia's 5-year government bond with an initial interest payment of $800,000 in early 2021. The bank manages the bond investment for the purpose of both collecting contractual cash flows and selling it. In February 2022, due to the Russian-Ukrainian war, the credit risk of Russian government bonds increased and yields rose sharply, so the fair value of the bank's government bonds on December 31, 2022 fell to $740,000, with an expected credit loss of $40,000. Assume Wells Fargo has reported a fair value assessment-adjusted loan balance of $8,000, an allowance for loss loan balance of $5,000, and other equity borrowings of $3,000 at the end of 2021
Required

1. Please make adjustments and closing entries related to December 31, 2022.
2. Explain how Wells Fargo will report the bond investment on its balance sheet and consolidated income statement at the end of 2022.
3. Wells Fargo sold this bond investment on January 3, 2023 for $740,000 ($10,000 not including handling fee), please sell the bond
's entry.
4. Assuming Wells Fargo continues to hold the bond investment, on March 31, 2023, the improvement in the credit risk of Russian bonds causes the bond investment to increase.
The expected credit loss of the capital was reduced to $15,000 and the fair value increased to $760,000. Please make an entry for March 31, 2023.

Answer rating: 100% (QA)

1 Dr Allowance for loan losses 40000 Cr Government bonds 40000 Dr Government bonds 40000 Cr Cash 400... View the full answer