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Fair value journal entries, available–for–sale investments The investments of Steelers Inc. include a single investment: 33,100 shares of Bengals Inc. common stock purchased on September 12, Year 1, for $13 per share including brokerage commission. These shares were classified as available – for – sale securities. As of the December 31, Year 1, balance sheet date, the share price declined to $11 per share. a. Journalize the entries to acquire the investment on September 12 and record the adjustment to fair value on December 31, Year 1. b. How is the unrealized gain or loss for available-for-sale investments disclosed on the financial statements?

BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 15, Problem 15.20EX
Textbook Problem

Fair value journal entries, available–for–sale investments

The investments of Steelers Inc. include a single investment: 33,100 shares of Bengals Inc. common stock purchased on September 12, Year 1, for $13 per share including brokerage commission. These shares were classified as availableforsale securities. As of the December 31, Year 1, balance sheet date, the share price declined to $11 per share.

a. Journalize the entries to acquire the investment on September 12 and record the adjustment to fair value on December 31, Year 1.

b. How is the unrealized gain or loss for available-for-sale investments disclosed on the financial statements?

Expert Solution

(a)

To determine

Available-for-sale securities: These are short-term or long-term investments in debt and equity securities with an intention of holding the investment for some strategic purposes like meeting liquidity needs, or manage interest risk.

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

  • Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
  • Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To journalize: The stock investment transactions in the books of Company S

Explanation of Solution

Prepare journal entry for the purchase of 33,100 shares of Company B, at $13 per share.

Date Account Titles and Explanations Post. Ref. Debit ($) Credit ($)
September 12 Investments–Company B Stock   430,300  
             Cash     430,300
    (To record purchase of shares for cash)      

Table (1)

Explanation:

  • Investments–Company B Stock is an asset account. Since stock investments are purchased, asset value increased, and an increase in asset is debited.
  • Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.

Working Notes:

Compute amount of cash paid to purchase Company B’s stock.

Cash paid = (Number of shares purchased× Price per share)(33,100 shares ×$13)= $430,300

Prepare adjusting entry for valuation of trading securities transaction

Expert Solution

(b)

To determine

To discuss: The reporting of available-for-sale investments on the financial statements

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Chapter 15 Solutions

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