5 S D F 8 control option 3. Accounting for Equity Securities (12 points) On its

Question

5 S D F 8 control option 3. Accounting for Equity Securities (12 points) On its December 31, 2016 balance sheet, Buff Company appropriately reported a $8,000 debit balance in its Fair Value Adjustment-Equity Investments account. The following information pertains to the portfolio for 2017: Mildcats, Inc. Silence of the Rams Co. Cornhusker CostFair value at 12/317 Dividends Received in 2017 $150,000 130,000 $154,000 112,000 $2,000 $2,500 a) Buff Co. is a calendar year-end reporting company. By how much would Buff's overall b) On 20 January 2018, Buff Co. sold its position in Silence of the Rams for S115,000. c) On 30 June 2018, Buff Co. purchased 10,000 shares of Beaver Company common stock net income be impacted from its investment in the portfolio for 2017? (3 pts) Please record the journal entry to recognize the sale. (2 pts) at $24 per share. The investment is included in the Equity Investment portfolio. Please record the journal entry to record the purchase. (2 pts) At the end of 2018, Buffs portfolio had the following fair values: Security Mildcats, Inc. Cornhusker $163,000 37,000 Beaver Company 256 d) Record the adjusting journal entry to update the portfolio to fair value at 12/31/18. (5 pts) 4. Accounting for Derivative Securities-Cash Flow Hedge (13 points)

Explanation / Answer

As the Fair Value Adjustment is carried only on the debit side of the balance sheet, all of them are TRADING securities , whose gain in value(the credit side of the entry), must have gone through the previous Income statement. a. Impact on overall Income Mildcats Inc. (154000-150000)+2000= 6000 Silence of the Rams Co. (112000-130000)+2500= -15500 Cornhusker (28000-33000)= -5000 -14500 Net Unrealised holding loss on the above trading securities 14500 b. Debit Credit Cash 115000 Equity Investment in Silence of the Rams Co. 112000 Gain on sale 3000 c. Equity investment in Beaver Co. 240000 Cash 240000 d. Mildcats Inc. (163000-154000)= 9000 Cornhusker (37000-28000)= 9000 Beaver Co. (256000-240000)= 16000 34000 Fair value adjustments-equity Investments 34000 Unrealised holding gain-Equity investments 34000

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