Question

Fair Value Journal Entries, Available-for-Sale Investments

Hurricane Inc. purchased a portfolio of available-for-sale securities in Year 1, its first year of operations. The cost and fair value of this portfolio on December 31, Year 1, was as follows:

Name		Number of Shares		Total Cost		Total Fair Value
Tornado Inc.		1,300		$17,420		$19,340
Tsunami Corp.		700		22,960		25,030
Typhoon Corp.		250		7,500		7,130
	Total			$47,880		$51,500

On June 12, Year 2, Hurricane purchased 550 shares of Rogue Wave Inc. at $30 per share plus a $100 brokerage commission.

a. Provide the journal entries to record the following:

1. The adjustment of the available-for-sale security portfolio to fair value on December 31, Year 1.
2. The June 12, Year 2, purchase of Rogue Wave Inc. stock.

Year 1, Dec. 31
Year 2, June 12

b. How are unrealized gains and losses treated differently for available-for-sale securities than for trading securities?

Unrealized gains and losses for available-for-sale securities reported as a credit (positive) or debit (negative) balance in the   section. As a result, the changes in fair value are not reflected on the  , as is the case with trading securities.

Answer 1

Refer to the below image for the above mentioned requirements in a detailed way of solution.