27th Edition
WARREN + 5 others
ISBN: 9781337272094




27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Valuing available-for-sale securities at fair value

On January 1, Valuation Allowance for Available-for-Sale Investments had a zero balance. On December 31, the cost of the available-for-sale securities was $24,260, and the fair value was $26,350. Prepare the adjusting entry to record the unrealized gain or loss on available-for-sale investments on December 31.

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 year-end valuation of available-for-sale securities transaction


  • Valuation Allowance for Available-for-Sale Investments is a contra-asset account. The account is debited because the market price was increased (loss) to $26,350 from the cost of $24,260.
  • Unrealized Gain (Loss) on Available-for-Sale Investments is an adjustment account used to report gain or loss on adjusting cost of investment at fair market value. Since gain has occurred and gains increase stockholders’ equity value, and an increase in stockholders’ equity value is credited.

Working Notes:

Compute the unrealized gain (loss) as on December 31...

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

Some income from capital is taxed twice. Explain.

Principles of Macroeconomics (MindTap Course List)

What are the major elements of Taylors scientific management?

Foundations of Business (MindTap Course List)

Why is productivity important?

Principles of Microeconomics (MindTap Course List)

Define assets, liabilities, owners equity, revenues, and expenses.

College Accounting (Book Only): A Career Approach

Why are accruals called spontaneous sources of funds, what are their costs, and why dont firms use more of them...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

Explain the purpose of the statement of cash flows.

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)