Question

Stoll Co.’s long-term available-for-sale portfolio at December 31, 2016, consists of the following. Available-for-Sale Securities Cost Fair Value 70,000 shares of Company A common stock $ 1,046,600 $ 915,000 42,000 shares of Company B common stock 352,750 342,000 41,000 shares of Company C common stock 1,385,000 1,332,875 Stoll enters into the following long-term investment transactions during year 2017. Jan. 29 Sold 21,000 shares of Company B common stock for $175,375 less a brokerage fee of $3,200. Apr. 17 Purchased 22,000 shares of Company W common stock for $480,000 plus a brokerage fee of $3,800. The shares represent a 30% ownership in Company W. July 6 Purchased 15,000 shares of Company X common stock for $261,625 plus a brokerage fee of $3,800. The shares represent a 10% ownership in Company X. Aug. 22 Purchased 100,000 shares of Company Y common stock for $660,000 plus a brokerage fee of $8,600. The shares represent a 51% ownership in Company Y. Nov. 13 Purchased 19,000 shares of Company Z common stock for $525,300 plus a brokerage fee of $6,600. The shares represent a 5% ownership in Company Z. Dec. 9 Sold 70,000 shares of Company A common stock for $1,031,000 less a brokerage fee of $4,100. The fair values of its investments at December 31, 2017, are: B, $171,250; C, $1,229,125; W, $391,000; X, $244,750; Y, $1,071,000; and Z, 566,100. Required: 1. Determine the amount Stoll should report on its December 31, 2017, balance sheet for its long-term investments in available-for-sale securities. 2. Prepare any necessary December 31, 2017, adjusting entry to record the fair value adjustment for the long-term investments in available-for-sale securities.

Answer 1

Part 1

Fair Value Adjustment Computation ­ Available ­for­ Sale Securities

December 31, 2017 AFS Securities	# of shares	Cost	Fair value	Unrealized amount	Gain or Loss?
Company B common stock	2100 (42000-21000)	176375 (352750/2)	171250
Company C common stock	41000	1385000	1229125
Company X common stock	15000	265425 (261625+3800)	244750
Company Z common stock	19000	531900 (525300+6600)	566100
Total		2358700	2211225	147475	Loss
Required December 31, 2017 Balance in the Fair Value Adjustment account				147475	Credit
December 31, 2016 Balance in the Fair Value Adjustment account (1046600+352750+1385000)-( 915000+342000+1332875)				194475	Credit
December 31, 2017 required adjustment to the Fair Value Adjustment account				47000	Debit
				Fair Value Adjustment(AFS)
Balance 12/­31/­2016					194475
12­/31/2017 adjustment				47000
Balance 12­/31­/2017					147475

Part 2

Date	General journal	Debit	Credit
Dec 31	Fair value adjustment—AFS	47000
	Unrealized loss—Equity		47000