Question

QS 15-8 Available-for-sale securities LO P3

Hiker Company completes the following transactions during the current year.

May		9		Purchases 300 shares of Higo stock as a short-term investment in available-for-sale securities at a cost of $35 per share plus $190 in broker fees.
June		2		Sells 150 shares of its investment in Higo stock at $38 per share. The broker’s commission on this sale is $110.
Dec.		31		The closing market price (fair value) of the Higo stock is $33 per share.

Prepare the May 9 and June 2 journal entries and the December 31 adjusting entry. This is the first and only time the company purchased such securities. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

May-09	Short Term Investments ((35*300)+190)	10690
	To Cash A/c		10690
	(Being 300 shares of Higo purchased at $35 per share)
Jun-02	Cash A/c0( (150*38)-110)	5590
	To Short Term Investments A/c (150*35)		5345
	To Gain on sale of shares		245
	(Being 150 shares of Higo sold @38 per share)
Dec-31	Unrealised Loss on Investment A/c	395
	To Short Term Investments A/c		395
	(Being unrealised loss booked on investment)

Since the secutirites are held as available for sale, they will be valued at fair value on Dec 31.

Workings:

Sale Value (150*38)-110	5590
less: Purchase value of 150 shares (10690/300*150)	5345
Gain on sales of shares	245

Purchase value of remaining 150 shares (10690/300*150)	5345
Closing Price per share	33
Value at Fair price (150*33)	4950
Unrealised Loss on Investment	395