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Recording and Reporting Equity Investment: FV-NI Adjust FVA at Year-End On November 1, 2020, Drucker Co....

Recording and Reporting Equity Investment: FV-NI

Adjust FVA at Year-End

On November 1, 2020, Drucker Co. acquired the following investments in equity securities measured at FV‑NI.

Kelly Corporation—600 shares of common stock (no-par) at $60 per share. Keefe Corporation—360 shares preferred stock ($10 par) at $20 per share. On December 31, 2020, the company’s year-end, the quoted market prices were as follows: Kelly Corporation common stock, $52, and Keefe Corporation preferred stock, $24. Following are the data for 2021.

Mar. 2, 2021 Dividends per share, declared and paid: Kelly Corp., $1, and Keefe Corp., $0.50.
Oct. 1, 2021 Sold 120 shares of Keefe Corporation preferred stock at $25 per share.
Dec. 31, 2021 Fair values: Kelly common, $46 per share, Keefe preferred, $26 per share.

Journal Entries and Financial Statement Presentation for 2020
Journal Entries and Financial Statement Presentation for 2021

a. Prepare the entry for Drucker Company to record the purchase of the securities.

Date	Account Name	Dr.	Cr.
Nov. 1, 2020	AnswerCashInterest ReceivableInvestment in TSFair Value Adjustment--TSInvestment in AFS SecuritiesFair Value Adjustment--AFSInvestment in HTM SecuritiesInvestment in StockFair Value Adjustment--Equity SecuritiesFair Value Adjustment--Fair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or Loss--OCIUnrealized Gain or Loss--IncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/A	Answer	Answer
	AnswerCashInterest ReceivableInvestment in TSFair Value Adjustment--TSInvestment in AFS SecuritiesFair Value Adjustment--AFSInvestment in HTM SecuritiesInvestment in StockFair Value Adjustment--Equity SecuritiesFair Value Adjustment--Fair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or Loss--OCIUnrealized Gain or Loss--IncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/A	Answer	Answer

b. Prepare any adjusting entry needed at December 31, 2020.

Date	Account Name	Dr.	Cr.
Dec. 31, 2020	AnswerCashInterest ReceivableInvestment in TSFair Value Adjustment--TSInvestment in AFS SecuritiesFair Value Adjustment--AFSInvestment in HTM SecuritiesInvestment in StockFair Value Adjustment--Equity SecuritiesFair Value Adjustment--Fair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or Loss--OCIUnrealized Gain or Loss--IncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/A	Answer	Answer
	AnswerCashInterest ReceivableInvestment in TSFair Value Adjustment--TSInvestment in AFS SecuritiesFair Value Adjustment--AFSInvestment in HTM SecuritiesInvestment in StockFair Value Adjustment--Equity SecuritiesFair Value Adjustment--Fair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or Loss--OCIUnrealized Gain or Loss--IncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/A	Answer	Answer

c. Indicate the items and amounts that should be reported on the 2020 income statement of Drucker and its year-end balance sheet. Assume that the investments are classified as current.
Note: Use a negative sign to indicate a loss.

Income Statement	2020
Other Revenues and Gains
Net gain (loss) on equity securities	Answer

Balance Sheet, December 31	2020
Assets
Investment in equity securities	Answer

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You have correctly selected 13.

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Expert Solution

a.	Druker & Co. purchase of securities
	Date	Account Name	Debit	Credit
	11/1/2020	Investment in equity securities (Kelly Corporation Shares)	$ 36,000		(600 shares @ $60/- each)
		Investment in equity securities (Keefe Corporation Preferred Shares)	$ 7200		(360 shares @ $20/- each)
		Cash/ Bank		$ 43200

b.	Adjusting entry as on 31st December 2020
	12/31/2020	Securities fair value adjustment	$ 1440		Keefe Corporation Preferred shares
		Unrealised Gain/ Loss a/c		$ 1440

		Unrealised Gain/ Loss a/c	$ 4800		Kelly Corporation shares
		Securities fair value adjustment		$ 4800

c.	Reporting in Balance sheet
	Assets
	Investment in equity securities	$ 43200		Total investment
	Add: Securities fair Value adjustment	$ 1440		Preferred shares of Keefe
	Less: Securities fair value adjustment	$ (4800)		Kelly corporation shares
		$ 39840
	Reporting in Income Statement
	Other Revenues and Gains
	Net Gain/ (Loss) on equity securities a/c		$ (3360)	Net Loss

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