Question

Problem 15-3A Debt investments in available-for-sale securities; unrealized and realized gains and losses LO P3

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Stoll Co.'s long-term available-for-sale portfolio at the start of this year consists of the following.

Available-for-Sale Securities	Cost			Fair Value
Company A bonds	$	533,600		$	490,000
Company B notes		159,230			152,000
Company C bonds		662,000			640,190

Stoll enters into the following transactions involving its available-for-sale debt securities this year.

Jan.		29		Sold one-half of the Company B notes for $78,640.
July		6		Purchased bonds of Company X for $126,900.
Nov.		13		Purchased notes of Company Z for $267,900.
Dec.		9		Sold all of the bonds of Company A for $521,600.

The fair values at December 31 are B, $83,900; C, $605,200; X, $107,000; and Z, $275,000.

Problem 15-3A Part 1 and 2

Required:
1. Prepare journal entries to record these transactions, including the December 31 adjusting entry to record the fair value adjustment for the long-term investments in available-for-sale securities.
2. Determine the amount Stoll reports on its December 31 balance sheet for its long-term investments in available-for-sale securities.

Answer 1

Answer:

Part 1

Jan. 29	Cash......................................................................	78640
	Loss on Sale of Debt Investments...........................	975
	Debt Investments—AFS*......		79615
	Sold B notes. *$159,230 x 1/2
July 6	Debt Investments—AFS..........................................	126,900
	Cash................................................................		126,900
	Purchased X bonds.
Nov. 13	Debt Investments—AFS..........................................	267,900
	Cash................................................................		267,900
	Purchased Z notes.
Dec. 9	Cash......................................................................	521600
	Loss on Sale of Debt Investments...........................	12000
	Debt Investments—AFS*..................................		533600
	Sold A bonds. *Amount from beg. yr. portfolio
Dec. 31	Fair Value Adjustment—AFS*..................................	8300
	Unrealized Loss—Equity..................................		8300
	Adjustment to fair value for AFS securities.

Available-for-sale securities portfolio at December 31 year end:

Security	Cost	Fair Value
Company B notes........ ...........................	$ 78640	$ 83,900
Company C bonds.......	662,000	605,200
Company X bonds.......	126,900	107,000
Company Z notes......... ...........................	267,900	275,000
	$1,135440	$1071100

* Beginning year available-for-sale securities portfolio:
Cost _	Fair Value
$ 533,600	$ 490,000
159,230	152,000
662,000	640,190
$1354830	$1282190

Fair Value Adjustment—AFS account:

$1354830 - $1282190 = $ 72640 Cr. balance at beginning of year

$1,135440 - $1071100 = 64340 Cr. balance required at Dec. 31 yr-end

$ 8300 Dr. to adjust cost to fair value

Part 2

Disclosure

The portfolio of available-for-sale securities is reported on the December 31 balance sheet at its fair value of $

1071100

.