Question

Information regarding Carperk Company's individual investments in securities during its calendar-year 2017, along with the December 31, 2017, fair values, follows.

Investment in Brava Company bonds: $359,300 cost, $390,559 fair value. Carperk intends to hold these bonds until they mature in 2022.

Investment in Baybridge common stock: 29,500 shares; $285,644 cost; $310,495 fair value. Carperk owns 32% of Baybridge's voting stock and has a significant influence over Baybridge.

Investment in Buffa common stock: 12,000 shares; $147,313 cost; $158,803 fair value. This investment amounts to 3% of Buffa’s outstanding shares, and Carperk’s goal with this investment is to earn dividends over the next few years.

Investment in Newton common stock: 3,500 shares; $81,920 cost; $80,527 fair value. Carperk’s goal with this investment is to reap an increase in fair value of the stock over the next three to five years. Newton has 30,000 common shares outstanding.

Investment in Farmers common stock: 16,300 shares; $89,825 cost; $95,394 fair value. This stock is marketable and is held as an investment of cash available for operations.

  

Required:

1. Identify whether each investment should be classified as a short-term or long-term investment. For each long-term investment, indicate in which of the long-term investment classifications it should be placed.
2. Prepare a journal entry dated December 31, 2017, to record the fair value adjustment of the long-term investments in available-for-sale securities. Carperk had no long-term investments prior to year 2017.

Complete this question by entering your answers in the tabs below.

Identify whether each investment should be classified as a short-term or long-term investment. For each long-term investment, indicate in which of the long-term investment classifications it should be placed. (Select "NA" in classification of long-term investment, if the type of investment is short term.)

	Type of Investment	Classification of Long-term Investment
a.
b.
c.
d.
e.

Prepare a journal entry dated December 31, 2017, to record the fair value adjustment of the long-term investments in available-for-sale securities. Carperk had no long-term investments prior to year 2017. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Journal entry worksheet

Record the fair value adjustment of the long-term investments in available-for-sale securities for Dec 31,2017. Carperk had no long-term investments prior to year 2017.

Date	General Journal	Debit	Credit
Dec 31

Answer 1

Answer 1.
		Type of Investment	Classification of Long-term Investment
a.	Brava Company - Bonds	Long Term	HTM Debt Securities
b.	Baybridge - Common Stock	Long Term	Equity Securities
c.	Buffa - Common Stock	Long Term	AFS Equity Securities
d.	Newton - Common Stock	Long Term	AFS Equity Securities
e.	Farmers - Common Stock	Short Term	Not Applicable

Answer 2.
			Cost	Fair Value	Unrealized
c.	Buffa - Common Stock	AFS Equity Securities	147,313.00	158,803.00	11,490.00
d.	Newton - Common Stock	AFS Equity Securities	81,920.00	80,527.00	(1,393.00)
Total			229,233.00	239,330.00	10,097.00

Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
31-Dec	Fair Value Adjustment - AFS (LT)	10,097.00
	Unrealized Gain - Equity		10,097.00
	(record the fair value adjustment for AFS)