Fair Value Journal Entries, Available-for-Sale Investments Hurricane Inc. purcha
ID: 2328730 • Letter: F
Question
Fair Value Journal Entries, Available-for-Sale Investments
Hurricane Inc. purchased a portfolio of available-for-sale securities in Year 1, its first year of operations. The cost and fair value of this portfolio on December 31, Year 1, was as follows:
On June 12, Year 2, Hurricane purchased 600 shares of Rogue Wave Inc. at $31 per share plus a $100 brokerage commission.
a. Provide the journal entries to record the following:
The adjustment of the available-for-sale security portfolio to fair value on December 31, Year 1.
The June 12, Year 2, purchase of Rogue Wave Inc. stock.
b. How are unrealized gains and losses treated differently for available-for-sale securities than for trading securities?
Unrealized gains and losses for available-for-sale securities reported as a credit (positive) or debit (negative) balance in the section. As a result, the changes in fair value are not reflected on the , as is the case with trading securities.
Name Number of Shares Total Cost Total Fair Value Tornado, Inc. 1,100 $14,740 $16,360 Tsunami Corp. 900 29,520 32,180 Typhoon Corp. 300 9,300 8,840 Total $53,560 $57,380Explanation / Answer
a)
b)unrealised gain or losses goes to AFS reserve which is a part of equityin case of available for sale security whereas same istaken to income statement in case of trading security.
Date Account Debit credit Year1 Dec 31 Valuation allownace for AFS investment 3820 unrealised gain on AFS investment 3820 [Being unrealised gain recorded 57380-53560] Year 2 june 12 Investment inRogue Wave Inc. 18700 cash 18700 [cost of purchase recorded (600*31)+100]Related Questions
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