In: Accounting
Second National Insurance Company provided this information for its trading securities portfolio:
Fair Value | ||||||||||||
Security | Date Acquired | Acquisition Cost | 12/31/16 | 12/31/17 | ||||||||
Company A Common | 1/15/16 | $ | 50,000 | $ | 60,000 | $ | 55,000 | |||||
Company B Common | 6/30/16 | 30,000 | 25,000 | 13,000 | * | |||||||
Company C Preferred | 2/1/17 | 20,000 | — | 25,000 | ||||||||
Company D Common | 5/1/17 | 10,000 | — | 12,000 | ||||||||
* Second National sold 50% of the Company B common shares for $14,000 on July 1, 2017. Fair value at December 31, 2017 is for the Company B shares remaining in the trading portfolio.
Required:
1-Provide the journal entries to record the fair value adjustment on December 31, 2016. Assume that Second National uses an account entitled Fair value adjustment—trading securities to adjust the cost of the trading portfolio to year-end fair values.
2-Provide the entry to record the sale of Company B’s common shares on July 1, 2017. Assume that the last fair value adjustment for these shares was on December 31, 2016.
3-Provide the journal entry and supporting calculations for the fair value adjustment on December 31, 2017.
4-What would the entries to record the sale of Company B common shares on July 1, 2017, have been if this security had been considered an available-for-sale security? Ignore tax effects.
(For all requirements, if no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
1-Prepare the entry to adjust investments to fair value at 12/31/2016.
2-Prepare the entry to record the sale of Company B's shares of stock.
3-Prepare the entry to adjust investments to fair value at 12/31/2017.
4-Prepare the entry to record the sale of Company B's shares of stock.
5-Prepare the entry to remove any unrealized gain (loss) on the Company B shares that were sold.
Note : Assuming it to be trading securities for the requirement 1 to 4 | ||||||||||
Security | Acquisition cost | Fair value 12/31/16 | Fair value adjustment on 12/31/16 | Selling price of 50% of Company B common | Realized gain/(loss) | Fair value 12/31/17 | Fair value adjustment on 12/31/17 | |||
Company A common | 50000 | 60000 | 10000 | 55000 | -5000 | |||||
Company B common | 30000 | 25000 | -5000 | 14000 | 1500 | 13000 | 500 | |||
Company C common | 20000 | 25000 | 5000 | |||||||
Company D common | 10000 | 12000 | 2000 | |||||||
Note : Assuming Company B common to be available for sale securities in requirement 5 | ||||||||||
Security | Acquisition cost | Fair value 12/31/16 | Fair value adjustment on 12/31/16 | Selling price of 50% of Company B common | Realized gain/(loss) | Fair value 12/31/17 | Fair value adjustment on 12/31/17 | |||
Company B common | 30000 | 25000 | -5000 | 14000 | -1000 | 13000 | 500 | |||
Date | General Journal | Debit | Credit | |||||||
Amount in $ | ||||||||||
Requirement 1 | 12/31/16 | Fair value adjustment -trading securities | 10000 | Company A common Shares | ||||||
Unrealized loss on trading securities | 5000 | Company B common shares | ||||||||
Fair value adjustment -trading securities | 5000 | Company B common shares | ||||||||
Unrealized gain on trading securities | 10000 | Company A common Shares | ||||||||
To record the unrealied loss/gain on trading securities | ||||||||||
OR | You can also net off above entry as follows | |||||||||
Fair value adjustment -trading securities | 5000 | |||||||||
Unrealized gain on trading securities | 5000 | |||||||||
To record the unrealied loss/gain on trading securities | ||||||||||
Requirement 2 | 07/01/17 | Cash | 14000 | |||||||
Fair value adjsutment on trading securities | 2500 | |||||||||
Investment in Company B common shares | 15000 | |||||||||
Realized Gain on sale of trading securities | 1500 | |||||||||
To record the sale of 50% of common B shares | ||||||||||
Requirement 3 | 12/31/17 | Fair value adjustment-trading securities | 7500 | Company B+C+D common shares | ||||||
Unrealized loss on trading securities | 5000 | Company A common Shares | ||||||||
Fair value adjustment-trading securities | 5000 | Company A common Shares | ||||||||
Unrealized gain on trading securities | 7500 | Company B+C+D common shares | ||||||||
To record the unrealied loss/gain on trading securities | ||||||||||
OR | You can also net off above entry as follows | |||||||||
Fair value adjustment -trading securities | 2500 | |||||||||
Unrealized gain on trading securities | 2500 | |||||||||
To record the unrealied loss/gain on trading securities | ||||||||||
Requirement 4 & 5 | 12/31/16 | Cash | 14000 | ||
Realized loss on sale of AFS securities | 1000 | ||||
Investment in Company B common shares | 12500 | ||||
Fair value adjustment-AFS securities(OCI) | 2500 | ||||
To record the sale of 50% of common B shares | |||||
AFS means available for sale & | |||||
OCI means Other Comprehensive Income |