Question

Fair Value Journal Entries, Available-for-Sale Investments

Storm, Inc. purchased the following available-for-sale securities during Year 1, its first year of operations:

Name		Number of Shares	Total Cost
Dust Devil, Inc.		1,100		$34,650
Gale Co.		400		28,600
Whirlwind Co.		2,500		77,500
	Total			$140,750

The market price per share for the available-for-sale security portfolio on December 31, Year 1 was as follows:

	Market Price per Share
	Dec. 31, Year 1
Dust Devil, Inc	$22
Gale Co.	78
Whirlwind Co.	30

a. Provide the journal entry to adjust the available-for-sale security portfolio to fair value on December 31, Year 1.

Year 1, Dec. 31

b. Is there any impact of December 31, Year 1 journal entry on the income statement?

, any unrealized gain/loss is reported   of the  .

Answer 1

(a)

	Cost	Fair value on Dec31, Year 1
Dust devil	34,650	24,200 [1100 x 22]
Gale co.	28,600	31,200 [400 x 78]
Whilrind Co.	77,500	75,000 [2500 x 30]
Total	140,750	130,400

Unrealized Gain (Loss) on available for sale investments Dr. 10,350 [140,750 - 130,400]

To Valuation allowance for available for sale investments 10,350

(b) There is no income statement impact from the adjusting entry. Unrealized Gain (Loss) on available for sale investments is reported in Stockholders Equity section of the balance sheet. On dec 31, year 1 unrealized gain or loss on available for sale investments would be disclosed as follows:

Unrealized Gain (Loss) on available for sale investments = ($10,350)