E 12–7: Securities available-for-sale; adjusting entries LO12–3 Loreal-American

Question

E 12–7: Securities available-for-sale; adjusting entries LO12–3

Loreal-American Corporation purchased several marketable securities during 2013. At December 31, 2013, the company had the investments in common stock listed below. None was held at the last reporting date, December 31, 2012, and all are considered securities available-for-sale.

Required: 1. Prepare the appropriate adjusting entry at December 31, 2013.

2. What amounts would be reported in the income statement at December 31, 2013, as a result of the adjusting entry?

Unrealized Holding Gain (Loss) Cost Fair Value Short term: Blair, Inc. ANC Corporation $ 480,000 450,000 $ 930,000 $ 405,000 480,000 $ 885,000 $(75,000) 30,000 Totals $(45,000) Long term: Drake Corporation Aaron Industries $ 480,000 720,000 $1,200,000 $ 560,000 660,000 $1,220,000 $ 80,000 (60,000) $ 20,000 Totals

Explanation / Answer

Solution :

1.. adjusting entry

unrealised holding gain/loss

25000

      fair value adjustment

25000

(45000 - 20000)

2.. unrealised holding gain or loss would not be reported in income statement but it will be reported in other comprehensive income.

unrealised holding gain/loss

25000

      fair value adjustment

25000

(45000 - 20000)

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