ezto.mheducation.com Mail 10.00 points For several years Fister Links Products h
ID: 2611256 • Letter: E
Question
ezto.mheducation.com Mail 10.00 points For several years Fister Links Products has held shares of Microsoft common stock, considered by the company to be securities available-for-sale. The shares were acquired at a cost of $620,000. Their fair value last year was $754,000 and is $820,000 this year At what amount will the investment be reported in this year's balance sheet? What adjusting entry is required to accomplish this objective? (f no entry is required for a transactionlevent, select "No journal entry required" in the first account field.) View transaction list Record the adjusting entry to report the correct amount on this year's balance sheet. 1 balance FsExplanation / Answer
1) a) As the securities are considered by the company to be securities available-for-sale, the investment should be reported in each year end balance sheet at its fair value. Therefore in this year balance sheet, the investment will be reported at the fair value of $820,000
Investment $820,000
b) Any change in value go into a special account which is called "Unrealized gain/loss in other comprehensive income (OCI)". which is located in stockholder's equity.
For reporting the investments at its fair value at each balance sheet date, an adjusting entry is required on each balance sheet date which is shown as follows:- (Amount in $)
2) As securities are held by the company to earn short term differences in price, gain/(loss) will be realized only in the year of sale of securities (i.e. 2017 in this case). Unrealized holding gains and losses for these securities are not included in earnings. S&L reports its $5,000 holding loss ($965,000-$960,000) in 2016 as other comprehensive income in the statement of comprehensive income.
The sale price of securities = $968,500
The purchase price of securities = $965,000
Gain to be recognized in 2017 = $968,500-$965,000 = $3,500
Date Account Titles Debit Credit Last year end Investment (Fair Value) 754,000 Unrealized gain in OCI 134,000 Investment (Cost) 620,000 This year end Investment (Fair Value) 820,000 Unrealized gain in OCI 66,000 Investment (Fair Value) 754,000Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.