Question

Exercise 17-7

On December 21, 2017, Riverbed Company provided you with the following information regarding its equity investments.

December 31, 2017
Investments (Trading)		Cost		Fair Value		Unrealized Gain (Loss)
Clemson Corp. stock		$18,900		$17,900		$(1,000	)
Colorado Co. stock		9,000		8,000		(1,000	)
Buffaloes Co. stock		18,900		19,540		640
Total of portfolio		$46,800		$45,440		(1,360	)
Previous fair value adjustment balance						0
Fair value adjustment—Cr.						$(1,360	)

During 2018, Colorado Company stock was sold for $8,550. The fair value of the stock on December 31, 2018, was Clemson Corp. stock—$18,010; Buffaloes Co. stock—$19,430. None of the equity investments result in significant influence.

(a)		Prepare the adjusting journal entry needed on December 31, 2017.
(b)		Prepare the journal entry to record the sale of the Colorado Co. stock during 2018.
(c)		Prepare the adjusting journal entry needed on December 31, 2018.

Answer 1

Solution:

Riverbed Company
No.	General Journal	Debit	Credit
a.	Unrealized Holding gain or loss Dr	$1,360
	To Fair Value Adjustment		$1,360
	(To record Unrealized gain or loss at December 31, 2017)
b.	Cash Dr	$8,550
	Loss on Sale of Investment	$450
	To Trading Investments		$9,000
	(To record sale of colorado stock during 2018)
c.	Fair Value Adjustment Dr (Note)	$1,000
	To Unrealized Holding gain or loss		$1,000
	(To record Unrealized gain or loss at December 31, 2018)

Note:

Computation of Unrealized gain or loss on December 31, 2018
Investment (Trading)	Cost	Fair Value at Dec 31 2018	Unrealized holding Gain (Loss)
Clemson Corp.	18900	18010	-890
Buffaloes co.	18900	19430	530
Total			-360
Previous fair value adjustment balance			1360
Fair Value adjustment 2018			1000