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,the journal entry made by the debt service fund will include:

Question

Quizplus · Accepted Answer

Since the investments were transferred at a lower fair market value than their cost, there is a loss in value. This loss needs to be recognized as a revenue in the debt service fund's financial statements. Therefore, the journal entry made by the debt service fund will include a debit to Revenues-Change in Fair Value of Investments in the amount of $100,000. The cost of the investments is not relevant for this entry, so options A and C can be eliminated. Also, there is no credit to investments in this transaction, so option D can be eliminated.

When a Cash and Investment Pool of a Certain City