Question

On December 31, 20Y1, Smith, Inc. provided you with the following information regarding its securities:

Investments	Cost	Fair value	Unrealized gain (loss)
Aloe Corp. Stock	$ 50,000	$62,000	$ 12,000
Fuller Inc Stock	80,000	83,000	3,000
Holmes Corp Stock	100,000	91,000	(9,000)
	$230,000	236,000	6,000
Previous securities FV adjustment balance			-
Securities FV adjustment (DR)			6,000

During 20Y2, Harold acquired TD, Inc. stock for $40,000 in cash. Also during 20Y2, Harold sold the Holmes Corp. stock for $90,000. At December 31, 20Y2, the TD, Inc. stock had a fair value of $41,000. Also, at December 31, 20Y2, the Aloe Corp. stock’s fair value was $58,000 and the Fuller, Inc. stock’s fair value was $70,000.

Choose the two options that represent the adjusting journal entry needed on December 31, 20Y2.

		Debit to Unrealized Holding Gain or Loss - Equity or OCI for $1,000
		Credit to Fair Value Adjustment for $7,000
		Credit to Unrealized Holding Gain or Loss - Equity or OCI for $7,000
		Debit to Fair Value Adjustment for $1,000
		Credit to Unrealized Holding Gain or Loss - Income for $1,000
		Debit to Unrealized Holding Gain or Loss - Income for $7,000

Answer 1