The following information is available for JKL Company at December 31, 2014, reg

ID: 2423019 • Letter: T

Question

The following information is available for JKL Company at December 31, 2014, regarding its investments.

Securities Cost Fair Value

500 shares of A corporation common stock 25,000 40,000

7,000 shares of B Corporation preferred stock 650,000 620,000

Total 675,000 660,000

The company did not have any investments prior to 2014.

(a) Prepare the adjusting entry (if any) for 2014, assuming the securities are classified as trading.

(b) Prepare the adjusting entry (if any) for 2014, assuming the securities are classified as availableforsale

. (c) Discuss how the amounts reported in the financial statements are affected by the entries in (a) and (b)

Show all your calculations and work.

Explanation / Answer

Investments

Cost

Fair Value

Unrealized Gain or Loss

A Corporation Common Stock

25000

40000

15000

B Corporation Common Stock

650000

620000

-30000

Total

675000

660000

-15000

Securities Available for Trading:

Unrealized Gain or Loss –Income 15000

Fair Value adjustment (Trading) 15000

Securities Available for Sale:

Unrealized Gain or Loss –Equity 15000

Fair Value adjustment (available for Sale) 15000

In the case of (a) the unrealized loss would be charged to Income statementand in the Case of (b) the Unrealized Loss would be deducted from the Stock holders Equity Section