At the beginning of 2018, Ace Company had the following portfolio of investments in available-for-sale debt securities (all of which were acquired at par value):

Security

Cost

1/1/18 Fair Value

A $35,000 $44,000

B 53,000 50,000

Totals $88,000 $94,000

During 2018, the following transactions occurred:

May 3 Purchased C debt securities at their par value for $50,000.

July 1Sold all of the A securities for $44,000 plus interest of $1,000.

Dec. 31Received interest of $1,000 on the B and C securities.

Additionally the following information was available:Security

12/31/18 Fair Value

B $58,000

C 53,000

Required:

1. Prepare journal entries to record the preceding information.

2. What is the balance in the Unrealized Holding Gain/Loss account on December 31, 2018?3.

Next LevelWhat justification does the FASB give for its treatment of unrealized holding gains and losses for available-for-sale securities?

CHART OF ACCOUNTS

Ace Company

General Ledger

ASSETS

111 Cash

114 Investment in Available-for-Sale Securities

119 Allowance for Change in Fair Value of Investment

121 Accounts Receivable

141 Inventory

151 Supplies

152 Prepaid Insurance

LIABILITIES

211 Accounts Payable

221 Notes Payable

224 Interest Payable

231 Salaries Payable

EQUITY

311 Common Stock

331 Retained Earnings

391 Unrealized Holding Gain/Loss: Available-for-Sale Securities

REVENUE

411 Sales Revenue

431 Interest Income

435 Gain on Sale of Available-for-Sale Securities

EXPENSES

500 Cost of Goods Sold

511 Insurance Expense

512 Utilities Expense

513 Delivery Expense

515 Supplies Expense

521 Advertising Expense

523 Salaries Expense

531 Bad debt Expense

539 Miscellaneous Expenses

540 Interest Expense

Prepare journal entries to record the 2018 transactions. Additional Instructions

PAGE 1

GENERAL JOURNAL

DATEACCOUNT TITLEPOST. REF.DEBITCREDIT

1

2

3

4

5

6

7

8

9

10

11

12

What is the balance in the Unrealized Holding Gain/Loss account on December 31, 2018?