Question

Jerome, Inc., owned a single short-term available-for-sale security with a cost of $40,000 and a fair value of $40,500 at December 31 of the previous year. At that time, an adjusting entry was recorded for the fair value adjustment with a debit to Fair Value Adjustment—Available-for-sale for $500 and a credit to Unrealized Gain—Equity for $500. Jerome sold that security for $39,900 on January 4 of the current year.

Complete the necessary journal entry for January 4th by selecting the account names from the pull-down menus and entering the dollar amounts in the debit and credit columns.

Answer 1

The journal entry for January 4th would include a debit to Cash for $39,900 and a credit to the Available-for-sale Security for $40,000. There would be a difference of $100 representing a realized loss on the sale.

Step-by-step explanation:

On January 4th, the journal entry to record the sale of the security would include a debit to Cash for $39,900 and a credit to the Available-for-sale Security for $40,000. The difference of $100 ($40,000 - $39,900) represents a realized loss on the sale of the security. This realized loss would be recorded separately.

Answer 2

The necessary journal entry for January 4th is as follows: Debit Cash $39,900 and Loss on Sale of Security $600, Credit Available-for-sale Investment $40,500, Fair Value Adjustment—Available-for-sale $500, and Unrealized Gain—Equity $500.

Step-by-step explanation:

The necessary journal entry for January 4th would be:

Debit

Cash $39,900

Loss on Sale of Security $600

Credit

• Available-for-sale Investment $40,500
• Fair Value Adjustment—Available-for-sale $500
• Unrealized Gain—Equity $500

This journal entry reflects the sale of the security for $39,900, resulting in a loss of $600. The available-for-sale investment account is debited, and the fair value adjustment and unrealized gain accounts are credited.