Question
In: Accounting
At the beginning of 2018, Ace Company had the following portfolio of investments in available-for-sale debt...
At the beginning of 2018, Ace Company had the following portfolio of investments in available-for-sale debt securities (all of which were acquired at par value):
|
Security |
Cost |
1/1/18 Fair Value |
| A | $45,000 | $56,000 |
| B | 68,000 | 65,000 |
| Totals | $113,000 | $121,000 |
During 2018, the following transactions occurred:
| May 3 | Purchased C debt securities at their par value for $50,000. |
| July 1 | Sold all of the A securities for $56,000 plus interest of $1,000. |
| Dec. 31 | Received interest of $1,000 on the B and C securities. Additionally the following information was available: |
|
Security |
12/31/18 Fair Value |
| B | $75,000 |
| C | 53,000 |
Required:
| 1. | Prepare journal entries to record the preceding information. |
| 2. | What is the balance in the Unrealized Holding Gain/Loss account on December 31, 2018? |
| 3. | Next Level What justification does the FASB give for its treatment of unrealized holding gains and losses for available-for-sale securities? |
Solutions
Expert Solution
| 1 | Journal entries | |||
| Date | General Journal | Debit($) | Credit($) | |
| 3-May-18 | Available for sale debt securities a/c…Dr. | 50000 | ||
| Cash | 50000 | |||
| (being debt securities purchased) | ||||
| July 1,2018 | Cash a/c…Dr | 57000 | ||
| Unrealized Gain-OCI a/c…Dr | 11000 | |||
| Available for sale debt securities (A) | 56000 | |||
| Interest income | 1000 | |||
| Realized gain on sale of debt securities A | 11000 | |||
| (Being sold A securities) | ||||
| 31 Dec, 2018 | Cash a/c…Dr. | 1000 | ||
| Interest income | 1000 | |||
| (being interest received from B & C securities) | ||||
| 31 Dec, 2018 | Available for sale debt securities a/c…Dr. (B) | 10000 | 75000-65000) | |
| Available for sale debt securities a/c…Dr. © | 3000 | (53000-50000) | ||
| Unrealized gain (loss) | 13000 | |||
| Working note: | ||||
| Unrealized Gain(Loss) as on 1/1/2018 | ||||
| cost ($) | Fair value ($) | Unrealized gain(loss) | ||
| Security A | 45000 | 56000 | 11000 | |
| Security B | 68000 | 65000 | -3000 | |
| 2 | Unrealized gain (loss) balance as on dec, 31 2018 | |||
| Beginning balance of unrealized gain(loss) of security B | -3000 | |||
| Add: fair value adjustment on 31 dec, 2018 | ||||
| Security B (75000-65000) | 10000 | |||
| Security C (53000-50000) | 3000 | |||
| Unrealized gain balance as on dec, 31 2018 | 10000 | |||
| 3 | Available for sale securities are debt securities that are purchased with the intent of selling before | |||
| they are reaching to maturity and they are reported at fair value with unrealized gain or losses | ||||
| included in other comprehensive income. | ||||
| company should sell the stock and amount collected in cash for for realization of unrealized gain. | ||||
ekkarill92 answered 2 years agoRelated Solutions
At the beginning of 2018, Ace Company had the following portfolio of investments in available-for-sale debt...
At the beginning of 2018, Ace Company had the following
portfolio of investments in available-for-sale debt securities (all
of which were acquired at par value):
Security
Cost
1/1/2018 Fair Value
A
$20,000
$25,000
B
30,000
29,000
Totals
$50,000
$54,000
During 2018, the following transactions occurred:
May
3
Purchased C debt securities at
their par value for $50,000.
July
1
Sold all of the A securities for
$25,000 plus interest of $1,000.
Dec.
31
Received interest of $7,600 on the
B...
At the beginning of 2018, Ace Company had the following portfolio of investments in available-for-sale debt...
At the beginning of 2018, Ace Company had the following
portfolio of investments in available-for-sale debt securities (all
of which were acquired at par value):
Security
Cost
1/1/2018 Fair Value
A
$20,000
$25,000
B
30,000
29,000
Totals
$50,000
$54,000
During 2018, the following transactions occurred:
May 3
Purchased C debt securities at their par value for
$50,000.
July 1
Sold all of the A securities for $25,000 plus interest of
$1,000.
Dec. 31
Received interest of $7,600 on the B...
At the beginning of 2018, Ace Company had the following portfolio of investments in available-for-sale debt...
At the beginning of 2018, Ace Company had the following
portfolio of investments in available-for-sale debt securities (all
of which were acquired at par value):
Security
Cost
1/1/2018 Fair Value
A
$20,000
$25,000
B
30,000
29,000
Totals
$50,000
$54,000
During 2018, the following transactions occurred:
May 3
Purchased C debt securities at their par value for
$50,000.
July 1
Sold all of the A securities for $25,000 plus interest of
$1,000.
Dec. 31
Received interest of $7,600 on the B...
At the beginning of 2018, Ace Company had the following portfolio of investments in available-for-sale debt...
At the beginning of 2018, Ace Company had the following
portfolio of investments in available-for-sale debt securities (all
of which were acquired at par value):
Security
Cost
1/1/2018 Fair Value
A
$20,000
$25,000
B
30,000
29,000
Totals
$50,000
$54,000
During 2018, the following transactions occurred:
May 3
Purchased C debt securities at their par value for
$50,000.
July 1
Sold all of the A securities for $25,000 plus interest of
$1,000.
Dec. 31
Received interest of $7,600 on the B...
At the beginning of 2016, Ace Company had the following portfolio of investments in available-for-sale securities...
At the beginning of 2016, Ace Company had the following
portfolio of investments in available-for-sale securities (common
stock):
Security
Cost
12/31/15 Fair Value
A
$19,000
$22,500
B
32,000
30,000
Totals
$51,000
$52,500
During 2016, the following transactions occurred:
May
3
Purchased C securities (common
stock) for $14,500.
July
16
Sold all of the A securities for
$22,500.
Dec.
31
Received dividends of $650 on the B
and C securities, for which the following information was
available:
Security
12/31/16 Fair Value...
On January 1, Glide Company had the following portfolio of investments in available-for-sale debt securities: Original ...
On January 1, Glide Company had the following portfolio of
investments in available-for-sale debt securities:
Original
Fair
Value
Holding Gain
or
Sold prior to
Securities:
Cost
Jan
1st
Loss on Jan
1st
Dec 31st ?
ACE
$20,000
$24,000
$4,000
YES
CHA
40,000
-
-
-
-
NO
During the year the following transactions occurred:
May 1 à Purchased CHA debt securities at par value for
$40,000
July 1 à Sold all the ACE securities for...
At the end of 2018, Terry Company prepared the following schedule of investments in available-for-sale debt...
At the end of 2018, Terry Company prepared the following
schedule of investments in available-for-sale debt securities:
Company
Amortized Cost
12/31/18 Fair Value
Cumulative Change in Fair Value
Morgan Company
$30,000
$29,200
$(800)
Nance Company
50,000
53,200
3,200
Totals
$80,000
$82,400
$2,400
During 2019, the following transactions occurred:
July 1
Purchased Oscar Company debt securities with a par value of
100,000 for $98,000. The securities carry an annual interest rate
of 10%, mature on July 1, 2024, and pay interest...
Fair Value Journal Entries, Available-for-Sale Investments Hurricane Inc. purchased a portfolio of available-for-sale securities in Year...
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...
1.If a company purchases its long term investments in available for sale debt securities this period...
1.If a company purchases its long term investments in available
for sale debt securities this period and their fair value is below
cost at the balance sheet date, what entry is required to recognize
the unrealized loss?
2. On a balance sheet, what valuation must be reported for debt
securities classified as available for sale?
3. Under what circumstances are long-term investments in debt
securities reported at cost and adjusted for amortization of any
difference between cost and maturity value?...
On December 31, 2018, Marsh Company held Xenon Company bonds in its portfolio of available-for-sale securities....
On December 31, 2018, Marsh Company held Xenon Company bonds in
its portfolio of available-for-sale securities. The bonds have a
par value of $14,000, carry a 10% annual interest rate, mature in
2025, and had originally been purchased at par. The market value of
the bonds at December 31, 2018 was $12,000. The December 31, 2018,
balance sheet showed the following:
Marsh Company
Partial Balance Sheet
December 31, 2018
1
Assets
2
Investment in Available-for-Sale Securities
$14,000.00
3
Less: Allowance...
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