Question

Fair Value Journal Entries, Available-for-Sale Investments

The investments of Steelers Inc. include a single investment: 10,100 shares of Bengals Inc. common stock purchased on September 12, Year 1, for $10 per share including brokerage commission. These shares were classified as available-for-sale securities. As of the December 31, Year 1, balance sheet date, the share price declined to $7 per share.

a. Journalize the entries to acquire the investment on September 12 and record the adjustment to fair value on December 31, Year 1.

Year 1 Sept. 12
Year 1 Dec. 31

b. How is the unrealized gain or loss for available-for-sale investments disclosed on the financial statements?

Unrealized Gain (Loss) on Available-for-Sale Investments is reported in the   of the  .

Answer 1

Year 1 Sept 12. Journal Entry will be:

Investment Account Dr. $101000

Bank/cash Account Cr. $101000

Being 10100 share purchase of Bengals Inc @ $10 each)

Year 1 Dec 31: Sine this is available for sale, need to value at Fair Value. Hence entry will be:

Unrealised loss Account Dr. $ 30300

Investment Account Cr. $ 30300

(Being Journal voucher passed for reduction in fair value of shares(10100 shares @ $3(10-7))

b) Unrealised gains or loss are excluded from earnings and reported in a separate component of share holder

's equity)