Question

K has the following securities, all of which she purchased on 12-14-16. For each investment, K owns less than 5% of the investee’s outstanding common stock.

			Fair value	Fair value	Fair value
Name of Company	Number of shares	Cost per share	12/31/16	03/31/17	06/30/17
Bookface	10,000	$125	$123	$130	$127
Pear	5,000	$111	$100	$115	$113
Bank of Comerica	40,000	$35	$40	$49

On 02-10-17, K received a $0.10 cash dividend on each share of the Bank of Comerica stock.

On 04-11-17, K sold all of the Pear stock for $48 per share; K incurred and paid $125 of selling-related costs on the sales transaction.

K closes her books each quarter. Prepare the entries K should make on:

12-14-16.

12-31-16.

02-10-17.

03-31-17.

04-11-17.

06-30-17.

Answer 1

Note 1: Since K has less than 5% holding of total stock for each of the company, the investment qualifies as “Available-for-Sale” security and all the journal entries are made on that basis only.

Note 2: The table given in the question and the selling price of the stock suggest that the stock sold from the investment on 04-11-17 was “Bank of Comerica” stocks and I have made the journal entries accordingly. Please re-check the related information posted in the question as it contradicts with the table.

Date	Account	Debit	Credit
14-Dec-16	Available for Sale Securities - Bookface	1250000
	Available for Sale Securities - Pear	555000
	Available for Sale Securities - Bank of Comerica	1400000
	Cash		3205000
To record investment in "Available for Sale" securities
31-Dec-16	Unrealized Loss - Bookface	20000
	Unrealized Loss - Pear	55000
	Unrealized Gain - Bank of Comerica		200000
	Available for Sale Securities - Bookface		20000
	Available for Sale Securities - Pear		55000
	Available for Sale Securities - Bank of Comerica	200000
To record unrealized loss and gain due to change in fair value
10-Feb-17	Cash	4000
	Dividend Income		4000
To record receipt of cash dividends
31-Mar-17	Unrealized Gain - Bookface		70000
	Unrealized Gain - Pear		75000
	Unrealized Gain - Bank of Comerica		360000
	Available for Sale Securities - Bookface	70000
	Available for Sale Securities - Pear	75000
	Available for Sale Securities - Bank of Comerica	360000
To record unrealized loss and gain due to change in fair value
11-Apr-17	Available for Sale Securities - Bank of Comerica		1960000
	Unrealized Gain - Bank of Comerica	360000
	Cash	1920000
	Realized Gain - Bank of Comerica		320000
To record sale of "Available for sale" security (Bank of Comerica Stock)
30-Jun-17	Unrealized Loss - Bookface	30000
	Unrealized Loss - Pear	10000
	Available for Sale Securities - Bookface		30000
	Available for Sale Securities - Pear		10000
To record unrealized loss due to decrease in fair value