Question

The investments of Harlon Enterprises included the following cost and fair value amounts: ($ in millions) Fair Value, Dec. 31 Equity Investments Cost 2018 2019 A Corporation shares $ 42 $ 25 na B Corporation shares 57 57 $ 59 C Corporation shares 26 na 25 D Industries shares 56 57 61 Totals $ 181 $ 139 $ 145 Harlon accounts for its equity investment portfolio at fair value through net income. Harlon sold its holdings of A Corporation shares on June 1, 2019, for $26 million. On September 12, it purchased the C Corporation shares.

Required: 1. What is the effect of the sale of the A Corporation shares and the purchase of the C Corporation shares on Harlon’s 2019 pretax earnings?

2. At what amount should Harlon's securities equity investment portfolio be reported in its 2019 balance sheet?

Answer 1

1.Journal entries to Record the transaction
Date	Cash	Debit	Credit
01-june-19	cash	26
	loss in sale of investment	16
	Investment in C Corporation shares		42
12/09/19	investment in C corporation shares	26
	cash		26

2.

adjustment journal entries to record the transaction
date	account title & explanation	debit	credit
	fair value adjustment	22
net realized holding gain and loss			22

working note	cost		fair value
securities	2018	2019	2018	2019
A shares	42	25	25
B shares	57	57	57	59
C shares		0		25
D shares	56	57	57	61
Total	155	139	1390	145

2016 balance for fair value adjustment	-16	UL
2017 balance for fair value adjustment	6	UG
change in fair value adjustment	22	UG/UL
Where UG-> unrealiazed gain and UL-Unrealized loss