At January 1, 2012, the available-for-sale securities portfolio held by Darin Co

Question

At January 1, 2012, the available-for-sale securities portfolio held by Darin Corporation consisted of the following investments: 2,500 shares of Hacker common stock purchased for $42 per share. 1,500 shares of Kramer common stock purchased for $50 per share. At December 31, 2012, the fair values per share were Hacker $36 and Kramer $54. Prepare a schedule showing the cost and fair value of the portfolio at December 31, 2012. Prepare the adjusting entry to report the portfolio at fair value at December 31, 2012

Explanation / Answer

Part A)

The schedule of cost and fair market value is given below:

___________

Part B)

As the total fair value is less than the cost, it will result in an unrealized loss of $9,000 ($180,000 - $171,000). The adjusting entry would involve a debit to unrealized loss - equity and a credit to market adjustment - available for sale. The adjusting entry is given below:

Security Cost Fair Value Hacker 105,000 (2,500*42) 90,000 (2,500*36) Kramer 75,000 (1,500*50) 81,000 (1,500*54) Total $180,000 $171,000

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