Question

Pacific Fishing Inc.’s non-strategic investments as of December 31, 2017, are as follows:

	Cost	Fair Value
RIM common shares	$17,600	$19,450
Northern Electric common shares	42,750	42,050
Imperial Oil common shares	25,200	24,250
Inco Limited common shares	34,800	31,950

Pacific Fishing Inc. had no investments prior to 2017.

Required:
1. Prepare the fair value adjustment at December 31, 2017, based on the information provided. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)



2. Illustrate how the investments will be reported on the December 31, 2017, balance sheet.

Answer 1

1.

In this case, the value of the asset is written down or increased as per the market value and the gain/loss is booked.

COST F.VALUE GAIN/LOSS

RIM C.SHARES $17,600 $19,450 $1850

NORTH EL. C. SHARES $42,750    $42,050 $(700)

IMPERIAL OIL C.SHARES $25,200 $24,250 $ (950)

INCO LTD C.SHARES $34,800    $31,950 $ (2850)

TOTAL $120,350 $117,700 $(2650)

Assuming that these equity shares are available for sale, the securities should be recorded at the market value. The mark to market accounting journal entries will be as follows:

Loss on Securities Available for sale A/c Dr.          $ 2,650

To Investments available for sale A/c      Cr.          $ 2,650

2.

In the balance sheet, the Investments will be shown at the new amount of $ 117,700 ($ 120,350 – $ 2650) and the loss will be recorded in other comprehensive income.