Question
In: Accounting
Storm, Inc. purchased the following available-for-sale securities during Year 1, its first year of operations: Name...
Storm, Inc. purchased the following available-for-sale securities during Year 1, its first year of operations:
| Name | Number of Shares | Cost |
| Dust Devil, Inc. | 1,900 | $81,700 |
| Gale Co. | 860 | 69,660 |
| Whirlwind Co. | 2,840 | 110,760 |
| Total | $262,120 |
The market price per share for the available-for-sale security portfolio on December 31, Year 1, was as follows:
|
Market Price per Share, |
|
|
Dec. 31, Year 1 |
|
| Dust Devil, Inc. | $39 |
| Gale Co. | 75 |
| Whirlwind Co. | 42 |
Required:
| A. | Provide the journal entry to adjust the available-for-sale security portfolio to fair value on December 31, Year 1. Refer to the Chart of Accounts for exact wording of account titles. |
| B. | Describe the income statement impact from the December 31, Year 1, journal entry. |
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Expert Solution
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| Storm, Inc. | |||||
| Name | Number | Cost | Market Price | Market Value | Increase/(decrease) |
| Dust Devil, Inc. | 1,900.00 | 81,700.00 | 39.00 | 74,100.00 | (7,600.00) |
| Gale Co. | 860.00 | 69,660.00 | 75.00 | 64,500.00 | (5,160.00) |
| Whirlwind Co. | 2,840.00 | 110,760.00 | 42.00 | 119,280.00 | 8,520.00 |
| 262,120.00 | 257,880.00 | (4,240.00) | |||
| Answer a | |||||
| Journal Entry | |||||
| Account | Debit $ | Credit $ | |||
| Loss on available-for-sale securities (recorded in other comprehensive income) | 7,600.00 | ||||
| Dust Devil, Inc. | 7,600.00 | ||||
| Loss on available-for-sale securities (recorded in other comprehensive income) | 5,160.00 | ||||
| Gale Co. | 5,160.00 | ||||
| Whirlwind Co. | 8,520.00 | ||||
| Gain on available-for-sale securities (recorded in other comprehensive income) | 8,520.00 | ||||
| Answer b | |||||
| Net loss of $ 4,240 will be recorded as other comprehensive income in the income statement and will be shown in Balance Sheet. | |||||
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