On December 31, 2018, Marsh Company held Xenon Company bonds in its portfolio of available-for-sale securities. The bonds have a par value of $15,000, carry a 10% annual interest rate, mature in 2025, and had originally been purchased at par. The market value of the bonds at December 31, 2018 was $13,000. The December 31, 2018, balance sheet showed the following:

Marsh Company

Partial Balance Sheet

December 31, 2018

1

Assets

2

Investment in Available-for-Sale Securities

$15,000.00

3

Less: Allowance for Change in Fair Value of Investment

(2,000.00)

4

13,000.00

5

Shareholders' Equity:

6

Unrealized Holding Gain/Loss

$(2,000.00)

On January 1, 2019, Marsh acquired bonds of Yellow Company with a par value of $16,000 for $16,200. The Yellow Company bonds carry an annual interest rate of 12% and mature on December 31, 2023. Additionally, Marsh acquired Zebra Company bonds with a face value of 18,000 for $17,600. The Zebra Company bonds carry an 8% annual interest rate and mature on December 31, 2028. At the end of 2019, the respective market values of the bonds were: Xenon, $14,000; Yellow, $17,000; and Zebra, $20,000. Marsh classifies all of the debt securities as available-for-sale as it does not intend to hold them to maturity nor does it intend to actively buy and sell them. Assume that Marsh uses the straight-line method to amortize any discounts or premiums.

Required:

1.Prepare the journal entries necessary to record the purchase of the investments in 2019, the annual interest payments on December 31, 2019, and the adjusting entry needed on December 31, 2019.2.What would Marsh disclose on its December 31, 2019, balance sheet related to these investments?

2-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):

SecurityCost1/1/2018 Fair ValueA$20,000$25,000B30,00029,000Totals$50,000$54,000During 2018, the following transactions occurred:

May 3Purchased C debt securities at their par value for $50,000.July 1Sold all of the A securities for $25,000 plus interest of $1,000.Dec. 31Received interest of $7,600 on the B and C securities. Additionally the following information was available:Security12/31/18 Fair ValueB$29,000C52,500Required:

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?