Question

At December 31, 2020, the available-for-sale debt portfolio for Teal, Inc. is as follows.

Security		Cost		Fair Value		Unrealized Gain (Loss)
A		$25,375		$21,750		$(3,625	)
B		18,125		20,300		2,175
C		33,350		36,975		3,625
Total		$76,850		$79,025		2,175
Previous fair value adjustment balance—Dr.						580
Fair value adjustment—Dr.						$1,595

On January 20, 2021, Teal, Inc. sold security A for $21,895. The sale proceeds are net of brokerage fees.

Prepare the adjusting entry at December 31, 2020, to report the portfolio at fair value. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit

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List of Accounts

  

  

Show the balance sheet presentation of the investment-related accounts at December 31, 2020. (Do not leave any answer field blank. Enter 0 for amounts.)

TEAL, INC Balance Sheet                                                                       December 31, 2020For the Year Ended December 31, 2020For the Quarter Ended December 31, 2020
Accumulated other Comprehensive IncomeAccumulated other Comprehensive LossCommon StockCurrent AssetsCurrent LiabilitiesDebt InvestmentsEquity InvestmentsIntangible AssetsLong-term InvestmentsLong-term LiabilitiesAdditional Paid-in CapitalProperty, Plant and EquipmentRetained EarningsStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal Stockholders' Equity
Accumulated other Comprehensive IncomeAccumulated other Comprehensive LossCommon StockCurrent AssetsCurrent LiabilitiesDebt InvestmentsEquity InvestmentsIntangible AssetsLong-term InvestmentsLong-term LiabilitiesAdditional Paid-in CapitalProperty, Plant and EquipmentRetained EarningsStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal Stockholders' Equity					$
Accumulated other Comprehensive IncomeAccumulated other Comprehensive LossCommon StockCurrent AssetsCurrent LiabilitiesDebt InvestmentsEquity InvestmentsIntangible AssetsLong-term InvestmentsLong-term LiabilitiesAdditional Paid-in CapitalProperty, Plant and EquipmentRetained EarningsStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal Stockholders' Equity
Accumulated other Comprehensive IncomeAccumulated other Comprehensive LossCommon StockCurrent AssetsCurrent LiabilitiesDebt InvestmentsEquity InvestmentsIntangible AssetsLong-term InvestmentsLong-term LiabilitiesAdditional Paid-in CapitalProperty, Plant and EquipmentRetained EarningsStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal Stockholders' Equity
Accumulated other Comprehensive IncomeAccumulated other Comprehensive LossCommon StockCurrent AssetsCurrent LiabilitiesDebt InvestmentsEquity InvestmentsIntangible AssetsLong-term InvestmentsLong-term LiabilitiesAdditional Paid-in CapitalProperty, Plant and EquipmentRetained EarningsStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal Stockholders' Equity
Accumulated other Comprehensive IncomeAccumulated other Comprehensive LossCommon StockCurrent AssetsCurrent LiabilitiesDebt InvestmentsEquity InvestmentsIntangible AssetsLong-term InvestmentsLong-term LiabilitiesAdditional Paid-in CapitalProperty, Plant and EquipmentRetained EarningsStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal Stockholders' Equity
AddLess:
Accumulated other Comprehensive IncomeAccumulated other Comprehensive LossCommon StockCurrent AssetsCurrent LiabilitiesDebt InvestmentsEquity InvestmentsIntangible AssetsLong-term InvestmentsLong-term LiabilitiesAdditional Paid-in CapitalProperty, Plant and EquipmentRetained EarningsStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal Stockholders' Equity
Accumulated other Comprehensive IncomeAccumulated other Comprehensive LossCommon StockCurrent AssetsCurrent LiabilitiesDebt InvestmentsEquity InvestmentsIntangible AssetsLong-term InvestmentsLong-term LiabilitiesAdditional Paid-in CapitalProperty, Plant and EquipmentRetained EarningsStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal Stockholders' Equity					$

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List of Accounts

  

  

Prepare the journal entry for the 2021 sale of security A. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 20, 2021

Answer 1

Answer :

(a) Preparation of  the adjusting entry at December 31, 2020, to report the portfolio at fair value :

The portfolio should be reported at the fair value of $79,025. Since the cost of the portfolio is $76,850, the unrealized holding gain is $2,175, of which $580 is already recognized. Therefore, the December 31, 2020 adjusting entry should be:

Date	Account Titles and Explanation	Debit	Credit
	Securities Fair Value Adjustment (Available-for-Sale)	$1,595
	Unrealized Holding Gain or Loss		$1,595

(b) Balance sheet presentation of the investment-related accounts at December 31, 2020 :

TEAL, INC
Balance Sheet
As of December 31, 2020
Current assets:
Available-for-sale securities	$79,025
Stockholders’ equity:
Common stock	xxx,xxx
Additional paid-in capital	xxx,xxx
Retained earnings	xxx,xxx
	xxx,xxx
Add: Accumulated other comprehensive income	$2,175
Total stockholders’ equity	xxx,xxx

(c) Journal entry for the 2021 sale of security A :

Date	Account Titles and Explanation	Debit	Credit
Jan. 20, 2021	Cash	$21,895
	Loss on Sale of Securities	$3,480
	Available-for-Sale Securities		$25,375

Note : Calculation of Profit / (Loss) on sale of securities :

Particulars	Amount
Net proceeds from sale of security A	$21,895
Cost of security A	$25,375
Loss on sale of stock	($3,480)