The accounting records of Jamaican Importers, Inc., at January 1, 2018, included the following: Assets: Investment...

The accounting records of Jamaican Importers, Inc., at January 1, 2018, included the following:


Assets:
Investment in IBM common shares	$	1,395,000
Less: Fair value adjustment		(150,000	)
	$	1,245,000

No changes occurred during 2018 in the investment portfolio.

Required:
Prepare appropriate adjusting entry(s) at December 31, 2018, assuming the fair value of the IBM common shares was:

$1,187,000

$1,287,000

$1,425,000

(If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Solutions

Expert Solution

The following are the appropriate adjusting entries:

1. Adjusting entry if the fair value of the IBM common shares was $1,187,000 on December 31, 2018:

Cost of Investment: $1,395,000;

Market value: $1,187,000;

Fair value loss : $208,000

Previously carried fair value loss: $150,000

Therefore, Unrealized loss = $208,000 - $150,000 = $58,000

2. Adjusting entry if the fair value of the IBM common shares was $1,287,000 on December 31, 2018

Cost of Investment: $1,395,000;

Market value: $1,287,000;

Fair value loss : $108,000

Previously carried fair value loss: $150,000

Therefore, Unrealized gain = $150,000 - $108,000 = $42,000

3. Adjusting entry if the fair value of the IBM common shares was $1,425,000 on December 31, 2018

Fair value adjustment is to be adjusted to the extent of the cost of the asset and can't be exceeded to the market price as in this case the market price is greater than the cost of investment.

Since market value is exceeding the cost, entire fair value loss can be written off.

Hope this is helpful!!

ekkarill92 answered 10 months ago

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