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Chapter 13: 14IFRS (page 658)

On December 21, 2017, Zurich Company provided you with the following information regarding its trading investments.

December 31, 2017

Investments (Trading) Cost Fair Value Unrealized Gain (Loss)

Stargate Corp. shares \(20,000 \)19,000 \((1,000)

Carolina Co. shares 10,000 9,000 1000

Vectorman Co. shares 20,000 20,600 600

Total of portfolio \)50,000 \(48,600 \)(1,400)

Previous fair value adjustment balance-0-

Fair value adjustment-Cr. \((1,400)

During 2018, Carolina Co. shares were sold for \)9,500. The fair value of the shares on December 31, 2018, was Stargate Corp.

shares-\(19,300: Vectorman Co. shares-\)20,500

Instructions

(a) Prepare the adjusting journal entry needed on December 31, 2017.

(b) Prepare the journal entry to record the sale of the Carolina Co. shares during 2018.

(c) Prepare the adjusting journal entry needed on December 31, 2018.

Short Answer

Expert verified

Unrealised holding gains or loss debited and fair value adjustment credited by $1,400. Cash debited by $500, loss on sale of investment debited by $500 and trading investment credited by $10,000. The unrealised holding loss is $200.

Step by step solution

01

Adjusting entry at the end of the year

DateParticularsDebitCredit
December 31,
2017		Unrealised Holding Gain or Loss-Loss$1,400

Fair Value Adjustment
$1,400

(Being entry of fair value adjustment)





02

Entry for the sale of investment

DateParticularsDebitCredit
December 31,
2018		Cash$9,500

Loss on sale of investment$500

trading Investment
$10,000

(Being entry for the loss on sale of investment)

03

Adjusting entry at the end of the year

DateParticularsDebitCredit
December 31,
2018		Unrealised Holding Gain or Loss-Loss$200

Fair Value Adjustment
$200

(Being entry of fair value adjustment)





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Most popular questions from this chapter

BE13-5 (L01) Dillons Corporation made credit sales of \(30,000 which are subject to 6% sales tax. The corporation also made cash sales which totalled \)20,670 including the 6% sales tax. (a) Prepare the entry to record Dillons’ credit sales. (b) Prepare the entry to record Dillons’ cash sales.

How does the acid-test ratio differ from the current ratio? How are they similar?

Komissarov Company has a debt investments in the bonds issued by Keune Inc. The bonds were purchased at par

for \(400,000 and, at the end of 2017, have a remaining life of 3 years with annual interest payments at 10%, paid at the end of each year. This debt investment is classified as held-for-collection. Keune is facing a tough economical environment and informs all of its investors that it will be unable to make all payments according to the contractul terms. The controller of Komissarov has prepared the following revised expected cash flow forecast for this bond investment.

December 31, Expected cash flows

2018 \)35,000

2019 35,000

2020 385,000

Total cash flows $455,000

Instructions

(a) Determine the impairement loss for Komissarov at December31, 2017.

(b) Prepare the entry to record the impairement loss for Komissarov at Decembber 31, 2017.

(c) On January 15, 2018, Keune receives a major capiatl infusion from a private equity investor. It informs Komissarov that the bonds now will be paid according to the contractual terms. Briefly describe how the Komissarov would account for the bond investment in light of this new information.

Presented below are two independent cases related to available-for-sale debt investments.

Case 1 Case 2

Amortized cost \(40,000 \)100,000

Fair value 30,000 110,000

Expected credit losses 25,000 92,000

For each case, determine the amount of impairment loss, if any

(Equity Investment) Oregon Co. had purchased 200 shares of Washington Co. for \(40 each this year (Oregon

Co. does not have significant influence). Oregon Co. sold 100 shares of Washington Co. stock for \)45 each. At year-end, the price

per share of the Washington Co. the stock had dropped to $35.

Instructions

Prepare the journal entries for these transactions and any year-end adjustments.
See all solutions

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