Connect Access Card For Financial Accounting Fundamentals
Connect Access Card For Financial Accounting Fundamentals
7th Edition
ISBN: 9781260482829
Author: John J Wild
Publisher: McGraw-Hill Education
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Chapter C, Problem 3BP

1.

To determine

Prepare journal entries to record the given transaction.

1.

Expert Solution
Check Mark

Explanation of Solution

Journal entry:

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

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

  • Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and equities.
  • Credit, all increase in liabilities, revenues, and equities, all decrease in assets, and expenses.

Prepare the journal entries to record the given transactions as follows:

Journal
DateAccount Title and ExplanationPostDebitCredit
Ref.($)($)
March 10, 2017Long-Term Investments-AFS (Company A) (1)31,400
Cash31,400
(To record the  Purchase of 1,200 shares for $25.50 per share along with a commission of $800)
April 7,  2017Long-Term Investments—AFS (Company F) (2)57,283
Cash57,283
(To record the  Purchase of  2,500 shares for $22.50 per share along with a commission of $1,033)
September 1, 2017Long-Term Investments—AFS (Company P) (3)29,090
Cash29,090
(To record the  Purchase of  600 shares for $47 per share along with a commission of $890)
December 31, 2017Unrealized Loss—Equity2,873
Fair Value Adjustment—AFS (Company LT) (7)2,873
(To record the Annual adjustment to fair value of securities)
April 26, 2018Cash (8)50,043
Loss on Sale of Investments7,240 
Long-Term Investments—AFS (Company F)57,283
(To record the  sale of 2,500 shares at $20.50 per share)
June 2, 2018Long-Term Investments—AFS (Company D) (9)35,700
Cash35,700
(To record the  Purchase of  1800 shares for $19.25 per share along with a commission of $1050)
June 14, 2018Long-Term Investments—AFS (Company S) (10)25,480
Cash25,480
(To record the  Purchase of  1,200 shares for $21 per share along with a commission of $280)
November 27, 2018Cash (11)29,755
Gain on Sale of Investments665
Long-Term Investments—AFS (Company P)29,090
(To record the  sale of 600 shares for $51 per share)
December 31, 2018Fair Value Adjustment-AFS (Company LT)5,093
Unrealized Loss-Equity (15)2,873
Unrealized Gain-Equity (15)2,220
(To record the Annual adjustment to fair value of securities)
January 28, 2019Long-Term Investments—AFS (Company C&C) (16)41,480
Cash 41,480
(To record the  Purchase of 1,000 shares for $40 per share along with a commission of $1480)
August 22, 2019Cash  (17)23,950
Loss on Sale of Investments 7,450 
Long-Term Investments—AFS (Company A)31,400
(To record the  sale of 1,200 shares at $21.5 per share)
September 3, 2019Long-Term Investments—AFS (Company M) (18)84,780
 Cash 84,780
(To record the  Purchase of 3,000 shares for $28 per share along with a commission of $780)
October 9, 2019Cash  (19)28,201
Gain on Sale of Investments 2,721
Long-Term Investments—AFS (Company S)25,480 
(To record the  sale of 1,200 shares at $24 per share)
October 31, 2019Cash  (20)26,102
Loss on Sale of Investments 9,598 
Long-Term Investments—AFS (Company E.K)35,700
(To record the  sale of 1,800 shares at $15 per share)
December 31, 2019Unrealized Gain—Equity2,220
      Unrealized Loss—Equity6,260
      Fair Value Adjustment—AFS (Company LT) (23)8,480
(To record the Annual adjustment to fair value of securities)

Table (1)

Working note:

Calculate the purchased value of long-term investment (Company A)

Long-term investment = [(Number of shares×Price per share)+Brokerage fee]=(1,200×$25.50pershare)+$800=$31,400 (1)

Calculate the purchased value of long-term investment (Company F)

Long-term investment = [(Number of shares×Price per share)+Brokerage fee]=(2,500×$22.50pershare)+$1,033=$57,283 (2)

Calculate the purchased value of long-term investment (Company P)

Long-term investment = [(Number of shares×Price per share)+Brokerage fee]=(600×$47pershare)+$890=$29,090 (3)

Calculate the fair value adjustment for 2017.

Name of the companyCost of long-term investmentFair value of long-term investmentUnrealized gain or (loss)
Company A$31,400 (1)$33,000 (4)
Company F$57,283 (2)$52,500 (5)
Company P$29,090 (3)$29,400 (6)
Total$117,773$114,900$2,873 (7)

Table (2)

Calculate the fair value of long-term investment of Company A:

Long-term investment = (Number of shares×Fair value per share)=(1,200×$27.50pershare)=$33,000 (4)

Calculate the fair value of long-term investment of Company F:

Long-term investment = (Number of shares×Fair value per share)=(2,500×$21pershare)=$52,500 (5)

Calculate the fair value of long-term investment of Company P:

Long-term investment = (Number of shares×Fair value per share)=(600×$49pershare)=$29,400 (6)

Calculate the value of unrealized gain or loss

Long-term investment = (Total Fair value  Total cost of investment)=($117,773$114,900)=$2,873 (7)

Calculate the value of cash received from the sale of stock investment (Company F stocks)

Cash received = ((Number of shares sold×Sales price per share)Brokerage fees)=(2,500×$20.5)$1,207=$50,043 (8)

Calculate the purchased value of long-term investment (Company D)

Long-term investment = [(Number of shares×Price per share)+Brokerage fee]=(1,800×$19.25pershare)+$1,050=$35,700 (9)

Calculate the purchased value of long-term investment (Company S)

Long-term investment = [(Number of shares×Price per share)+Brokerage fee]=(1,200×$21pershare)+$280=$25,480 (10)

Calculate the purchased value of long-term investment (Company P)

Cash received = ((Number of shares sold×Sales price per share)Brokerage fees)=(600×$51pershare)$845=$29,755 (11)

Calculate the fair value adjustment for 2018.

Name of the companyCost of long-term investmentFair value of long-term investmentUnrealized gain or (loss)
Company A$31,400 (11)$34,800 (12)
Company D$35,700 (10)$32,400 (13)
Company S$25,480 (3)$27,600 (14)
Total$92,580$94,800$2,220

Table (3)

Calculate the fair value of long-term investment of Company A:

Long-term investment = (Number of shares×Fair value per share)=(1,200×$29pershare)=$34,800 (12)

Calculate the fair value of long-term investment of Company D:

Long-term investment = (Number of shares×Fair value per share)=(1,800×$18pershare)=$32,400 (13)

Calculate the fair value of long-term investment of Company S:

Long-term investment = (Number of shares×Fair value per share)=(1,200×$23pershare)=$27,600 (14)

Calculate the value of unrealized gain or loss

Long-term investment = (Total Fair valueTotalcost of investment)Unadjusted balance of 2017=($92,580$94,800)$2,873=$5,093 (15)

Calculate the purchased value of long-term investment (Company C&C)

Long-term investment = [(Number of shares×Price per share)+Brokerage fee]=(1,000×$40pershare)+$1,480=$41,480 (16)

Calculate the value of cash received from the sale of stock investment (Company A stocks)

Cash received = ((Number of shares sold×Sales price per share)Brokerage fees)=(1,200×$21.50)$1,850=$23,950 (17)

Calculate the purchased value of long-term investment (Company M)

Long-term investment = [(Number of shares×Price per share)+Brokerage fee]=(3,000×$28pershare)+$780=$84,780 (18)

Calculate the value of cash received from the sale of stock investment (Company SL stocks)

Cash received = ((Number of shares sold×Sales price per share)Brokerage fees)=(1,200×$24)$599=$28,201 (19)

Calculate the value of cash received from the sale of stock investment (Company E.K stocks)

Cash received = ((Number of shares sold×Sales price per share)Brokerage fees)=(1,800×$15)$898=$26,102 (20)

Calculate the fair value adjustment for 2019.

Name of the companyCost of long-term investmentFair value of long-term investmentUnrealized gain or (loss)
Company C&C$41,480 (16)$48,000 (21)
Company M$84,780 (18)$72,000 (22)
Total$126,260$120,000$6,260

Table (4)

Calculate the fair value of long-term investment of Company C&C:

Long-term investment = (Number of shares×Fair value per share)=(1,000×$48pershare)=$48,000 (21)

Calculate the fair value of long-term investment of Company M:

Long-term investment = (Number of shares×Fair value per share)=(3,000×$24pershare)=$72,000 (22)

Calculate the value of unrealized gain or loss:

Long-term investment = (Total Fair valueTotalcost of investment)+Unadjusted balance of 2018=($126,260$120,000)+$2,220=$8,480 (23)

2.

To determine

Prepare a table that summarizes the following

  1. a. Total cost,
  2. b. Total fair value adjustments,
  3. c. Total fair value of the portfolio of long-term available-for-sale securities at year-end.

2.

Expert Solution
Check Mark

Explanation of Solution

Prepare a table that summarizes the total cost, total fair value adjustments, and the total fair value as follows:

ParticularsDecember 31, 2017December 31, 2018December 31, 2019
a. Long-Term AFS Securities (cost)$117,773$92,580$126,260
b. Fair Value Adjustment(2,873)2,220(6,260)
c. Long-Term AFS Securities (fair value)$114,900$94,800$120,000

Table (5)

3.

To determine

Prepare a table that summarizes the following

  1. a. The realized gains and losses,
  2. b. The unrealized gains and losses for the portfolio of long-term available-for-sale securities at year-end.

3.

Expert Solution
Check Mark

Explanation of Solution

  1. a. Prepare a table that summarizes the realized gains and losses as follows:
Particulars201720182019
Realized gains (losses)
Sale of F shares$(7,240)
Sale of P shares665
Sale of D shares$  (9,598)
Sale of A shares(7,450)
Sale of S shares2,721
Total realized gain (loss)$0$(6,575)$(14,327)

Table (6)

  1. b. Prepare a table that summarizes the Unrealized gains and losses as follows
Particulars201720182019
Unrealized gains (losses) at year-end$(2,873)$2,220$(6,260)

 Table (7)

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