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Hurricane Inc. purchased a portfolio of available-for-sale securities in Year 1, its first year of operations. The cost and fair value of this portfolio on December 31, Year 1, was as follows: On June 12, Year 2, Hurricane purchased 1,450 shares of Rogue Wave Inc. at $45 per share plus a $100 brokerage commission. a. Provide the journal entries to record the following: 1. The adjustment of the available-for-sale security portfolio to fair value on December 31, Year 1. 2. The June 12, Year 2, purchase of Rogue Wave Inc. stock. b. How are unrealized gains and losses treated differently for available-for-sale securities than for trading securities?

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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Section
BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 15, Problem 21E
Textbook Problem
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Hurricane Inc. purchased a portfolio of available-for-sale securities in Year 1, its first year of operations. The cost and fair value of this portfolio on December 31, Year 1, was as follows:

Chapter 15, Problem 21E, Hurricane Inc. purchased a portfolio of available-for-sale securities in Year 1, its first year of

On June 12, Year 2, Hurricane purchased 1,450 shares of Rogue Wave Inc. at $45 per share plus a $100 brokerage commission.

  1. a. Provide the journal entries to record the following:
    1. 1. The adjustment of the available-for-sale security portfolio to fair value on December 31, Year 1.
    2. 2. The June 12, Year 2, purchase of Rogue Wave Inc. stock.
  2. b. How are unrealized gains and losses treated differently for available-for-sale securities than for trading securities?

(a) (1)

To determine

Journalize the stock investment transactions in the books of Incorporation H.

Explanation of Solution

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.

Prepare adjusting entry for valuation of available-for-sale securities transaction.

Table (1)

  • Valuation Allowance for Available-for-Sale Investments is a contra-asset account...

(a) (2)

To determine

Prepare journal entry for the purchase of 1,450 shares of Incorporation R, at $45 per share and a brokerage of $100.

(b)

To determine

Describe the accounting treatment of available-for-sale securities, which makes it distinct from trading securities

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Chapter 15 Solutions

Financial Accounting
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