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Chapter 13: Q6E (page 658)

(Entries for Equity Securities) The following information is available for Barkley Company at December 31,

2017, regarding its investments.

Securities Cost Fair Value

3,000 shares of Myers Corporation common stock \(40,000 \)48,000

1,000 shares of Cole Incorporated preferred stock 25,000 22,000

\(65,000 \)70,000

Instructions

(a) Prepare the adjusting entry (if any) for 2017, assuming no balance in the Fair Value Adjustment account at January 1,

2017. Neither of Barkley’s investments result in significant influence.

(b) Discuss how the amounts reported in the financial statements are affected by the entries in (a).

Short Answer

Expert verified

Unrealized holding income is $5,000. Fair value adjustment debited by $5,000 and unrealized holding gain / loss income credited by $5,000.

Step by step solution

01

Adjusting entry of the fair value adjustment

Date

Description

Debit

Credit

December 31, 2017

Fair value adjustment

$5,000

Unrealized holding gain/loss- Income

$5,000

Being Entry of fair value recognition

The balance of both common stock and preferred stock is adjusted to find the net fair value adjustment.

02

Effect of the entries in the financial statements

Yes, these entries affect the financial statements because these are related to the income statement that comes under the other comprehensive income.

In this, securities fair value adjustment is added to the investment account to calculate net fair value.

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Most popular questions from this chapter

Question: E13-1 (L01) (Balance Sheet Classification of Various Liabilities) How would each of the following items be reported on the balance sheet? (a) Accrued vacation pay. (j) Premium offers outstanding. (b) Estimated taxes payable. (k) Discount on notes payable. (c) Service warranties on appliance sales. (l) Personal injury claim pending. (d) Bank overdraft. (m) Current maturities of long-term debts to be paid (e) Employee payroll deductions unremitted. from current assets. (f) Unpaid bonus to officers. (n) Cash dividends declared but unpaid. (g) Deposit received from customer to guarantee (o) Dividends in arrears on preferred stock. performance of a contract. (p) Loans from officers. (h) Sales taxes payable. (i) Gift certificates sold to customers but not yet redeemed.

Which types of investments are valued at amortized cost? Explain the rationale for this accounting.

Discuss the accounting treatment or disclosure that should be accorded a declared but unpaid cash dividend, an accumulated but undeclared dividend on cumulative preferred stock, and a stock dividend distributable.

(Fair Value Measurement Issues) Assume the same information as in E17-19 for Lilly Company. In addition,

assume that the investment in the Woods Inc. stock was sold during 2018 for \(195,000. On December 31, 2018, the following

information relates to its two remaining investments of common stock.

Cost Fair Value

(at purchase date) (at December 31)

Investment in Arroyo Company stock \)100,000 \(140,000

Investment in Lee Corporation stock 250,000 310,000

Total \)350,000 \(450,000

Net income before any security gains and losses for 2018 was \)905,000.

Instructions

(a) Compute the amount of net income or net loss that Lilly should report for 2018, taking into consideration Lilly’s securitytransactions for 2018.

(b) Prepare the journal entry to record unrealized gain or loss related to the investment in Arroyo Company stock atDecember 31, 2018.

Where can authoritative IFRS be found related to investments?
See all solutions

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