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In: Accounting

8. The accounting records of Jamaican Importers, Inc., at January 1, 2018, included the following: Assets...

8. The accounting records of Jamaican Importers, Inc., at January 1, 2018, included the following:

Assets Investment in IBM common shares $1,895,000 Less: Fair value adjustment (200,000) ____________ $1,695,000

No changes occurred during 2018 in the investment portifolio.

Required: Prepare appropriate adjusting entry(s) at December 31, 2018, assuming the fair value of the IBM common shares was

1. $1,331,000 2. $1,770,000 3. $1,920,000

(If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Record the fair value adjustment assuming the fair value of the IBM common shares was $1,331,000.

Transaction General Journal    Debit Credit   
1

Solutions

Expert Solution

Ans.

(1)

General Journal Debit Credit
Unrealized holding gains and losses $364,000
To investment in IBM common shares $364,000

(2)

General Journal Debit Credit
investment in IBM common shares $125,000
To unrealized holding gains and losses $125,000

(3)

General Journal Debit Credit
investment in IBM common shares $225,000
To unrealized holding gains and losses $225,000

Explanation:

(1)

Available for sale securities Cost Fair value Accumulated Unrealized gain(loss)
IBM-shares - 31 Dec 2018 $1,895,000 $1,331,000 ($564,000)

Moving from a negative $200,000 Jan-1 to a negative $564,000 requires a reduction of $364,000

Fair value Adjustment
Balance needed in fair value adj. ($564,000)
Existing balance in fair value adj. ($200,000)
Increase (decrease) needed in fair value adj. ($364,000)

Fair value adjustment = ($1,331,000 - $1,695,000) = $364,000

(2)

Available for sale securities Cost Fair value Accumulated Unrealized gain(loss)
IBM-shares - 31 Dec 2018 $1,895,000 $1,770,000 ($125,000)

Moving from a negative $200,000 Jan-1 to a negative $125,000 requires a reduction of $75,000

Fair value Adjustment
Balance needed in fair value adj. ($75,000)
Existing balance in fair value adj. ($200,000)
Increase (decrease) needed in fair value adj. ($125,000)

Fair value adjustment = ($1,770,000 - $1,695,000) = $125,000

(3)

Available for sale securities Cost Fair value Accumulated Unrealized gain(loss)
IBM-shares - 31 Dec 2018 $1,895,000 $1,920,000 $25,000

Moving from a negative $200,000 Jan-1 to a positive $25,000 requires a reduction of $225,000

Fair value Adjustment
Balance needed in fair value adj. $25,000
Existing balance in fair value adj. ($200,000)
Increase (decrease) needed in fair value adj. ($225,000)

Fair value adjustment = ($1,920,000 - $1,695,000) = $225,000

ekkarill92 answered 6 months ago
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