Chapter 17 - Group Work
- How are the following accounts reported on the Balance Sheet – at Cost or Fair Value?
Held-To-Maturity Bonds -reported at Amortized Cost
Available-For-Sale Securities (Bonds & Equities) – reported at Fair Value
Trading Securities (Bonds and Equities) – reported at Fair Value
- When Available-For-Sale Security Investments are adjusted to Fair Value, Unrealized Gains and Losses from those adjustments will be accumulated into which Equity account – Accumulated OCI or Retained Earnings?
Unrealized Gains and Losses resulting from marking AFS Securities to fair value will be reported as Other Comprehensive Income for the period and accumulated into Accumulated Other Comprehensive Income Equity.
- When Trading Securities are adjusted to Fair Value, Unrealized Gains and Losses from those adjustments will be accumulated into which Equity account – Accumulated OCI or Retained Earnings?
Unrealized Gains and Losses resulting from marking Trading Securities to fair value will be reported as realized income for the period and accumulated into Retained Earnings.
- a) At December 31, 2014, ABC company held the following Available-for-Sale securities and values.
Amortized CostFair Value
Available-for-Sale Security A $93,124 $82,500
Available-for-Sale Security B $103,050$105,700
$196,174$188,200
Prepare a journal entry to adjust the Available-for-Sale security investments to fair value – assuming no beginning balance in the Adjustment account.
DRCR
Unrealized Loss on AFS Securities-OCI Equity 7,974
Adjustment to Fair Value-AFS Securities 7,974
If the security investments were classified as Trading securities, what would have been the journal entry to adjust the Trading security investments to fair value?
DRCR
Unrealized Loss on Trading Securities- Income 7,974
Adjustment to Fair Value-Trading Securities 7,974
b)At December 31, 2015, the following year, ABC company’sAvailable-for-Sale securities had the following values.
Amortized CostFair Value
Available-for-Sale Security A $93,721 $94,600
Available-for-Sale Security B $104,600$105,300
$198,321$199,900
Prepare a journal entry to adjust Available-for-Sale security investments to fair value. Assume there is currently a beginning credit balance of $7,974 in the adjustment account.
DRCR
Adjustment to Fair Value – AFS Securities 9,553
Unrealized Gain on AFS Securities – OCI Equity 9,553
If the security investments were classified as Trading securities, what would have been the journal entry to adjust the Trading security investments to fair value?
DRCR
Adjustment to Fair Value – Trading Securities 9,553
Unrealized Gain on Trading Securities – Income 9,553
- a)On September 1, 2014, XYZ company purchased common stock from 3 companies – all representing less than 20% of the voting stock outstanding.
Cost
Maddow Inc. $55,000
Smith Inc. $120,000
Rudolph Inc. $78,000
$253,000
Prepare a journal entry to record the purchase – assume they are considered Available-For-Sale securities.
DRCR
Available For Sale Securities $253,000
Cash $253,000
b)On December 30, 2014, a cash dividend of $2,000 was received. Prepare the journal entry to record this transaction.
DR CR
Cash $2,000
Dividend Revenue $2,000
c)At December 31, 2014, XYZ company’s stock portfolio had the following values.
CostFair Value
Maddow Inc. $55,000 $68,600
Smith Inc. $120,000$128,200
Rudolph Inc. $78,000 $65,500
$253,000$262,300
Prepare the journal entry to adjust XYZ company’s stock investments to fair value assuming they are classified as:
1-Available-for-Sale securities
DRCR
Adjustment to Fair Value – AFS Securities$9,300
Unrealized Gain on AFS Securities – OCI Equity$9,300
2-Trading securities
DRCR
Adjustment to Fair Value – Trading Securities$9,300
Unrealized Gain on Trading Securities – Income$9,300
d)On March 20, 2015, all shares of the Smith Inc. stock was sold for $127,500. Prepare the necessary journal entry.
DR CR
Cash$127,500
AFS Securities$120,000
Realized Gain on Sale $7,500
e)At December 31, 2015, assume the following fair values of the remaining stocks.
CostFair Value
Maddow Inc. $55,000 $40,200
Rudolph Inc. $78,000 $69,500
$133,000$109,700
Assume the Adjustment account has a beginning Debit balance of $9,300. Prepare a journal entry to adjust the security investments to fair value assuming they are classified as:
1-Available-for-Sale securities
DR CR
Unrealized Loss on AFS Securities – OCI Equity$32,600
Adjustment to Fair Value – AFS Securities$32,600
2-Trading securities
DR CR
Unrealized Loss on Trading Securities – Income $32,600
Adjustment to Fair Value – Trading Securities$32,600
- a)On January 1, 2014, XYZ Co. purchased 30% of Raider Inc.’s voting stock for $420,000 at $30 p/share. Prepare the necessary journal entry.
DR CR
Raider Inc. Investment $420,000
Cash$420,000
b)At December 31, 2014, Raider Inc. reported $150,000 of Net Income for the period. Our share was - $45,000. Prepare the necessary journal entry.
DR CR
Raider Inc. Investment $45,000
Investment Income$45,000
c)At December 31, 2014 the shares of Raider Inc. in our portfolio had a fair value of $468,000. Prepare a journal entry for this change in fair value – if necessary.
No Entry
d)On January 20, 2015, Raider Inc. announced and paid a cash dividend of $65,000 – our share $19,500. Prepare the necessary journal entry.
DR CR
Cash $19,500
Raider Inc. Investment$19,500
f)At December 31, 2015, Raider Inc. reported a Net Loss of $86,000 – our share $25,800. Prepare the journal entry.
DR CR
Loss on Investment $25,800
Raider Inc. Investment$25,800