When a cash and investment pool of a certain city was established, the debt service fund transferred investments to the pool having a cost of $3,000,000 but a current fair market value of $2,900,000. To record this transaction, a single journal entry was made by the debt service fund that included which of the following?

Question

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The journal entry should include a debit to Revenues-Change in Fair Value of Investments for the difference between the cost and fair market value of the investments, which is $100,000. The entry should also include a credit to Investments for the current fair market value of $2,900,000. There should not be a debit to Equity in Pooled Cash and Investments as that is not a valid account. A credit to Investments would not be appropriate as that implies a decrease in the investment amount, which is not the case here.

When a Cash and Investment Pool of a Certain City