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Chapter 12: Q8E (page 610)

(Equity Securities Entries and Reporting) Satchel Corporation purchases equity securities costing \(73,000. At

December 31, the fair value of the portfolio is \)65,000.

Instructions

Prepare the adjusting entry to report the securities properly, assuming that the investments purchased represent less than a

5% interest in the other companies. Indicate the statement presentation of the accounts in your entry.

Short Answer

Expert verified

The unrealized account is debited with the loss of $8,000. Unrealised holding gain/ loss debited and fair value adjustment credited by $8,000.

Step by step solution

01

Step 1:Definition of equity

Equity is the portion of fund or finance provided by the owners of the company. Equity is considered as the internal liability due to accounting entity principle.

02

Entry of fair value adjustment

Date

Description

Debit

Credit

December 31

Unrealized holding gain/loss- loss

$8,000

Fair Value Adjustment ($73,000 - $65,000)

$8,000

Being Entry of fair value recognition

The unrealized losses and gains are rises due to the change in the fair value of the securities. When the fair value of the security increase it means there is the unrealized gain on the other hand if the fair value of the security decreases it means there is unrealized loss. Unrealized gain or loss is a part of the income statement. It is a part of the net income hence, to adjust this, entry will be made.

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Most popular questions from this chapter

What constitutes “significant influence” when an investor’s financial interest is below the 50% level?

The following information relates to Moran Co. for the year ended December 31, 2017: net income \(1,245.7 million; unrealized holding loss of \)10.9 million related to available-for-sale debt securities during the year; accumulated other comprehensive income of $57.2 million on December 31, 2016. Assuming no other changes in accumulated other comprehensive income, determine (a) other comprehensive income for 2017, (b)comprehensive income for 2017, and (c) accumulated other comprehensive income at December 31, 2017.

Joni Hyde Inc. has the following amounts reported in its general ledger at the end of the current year.

Organization costs $24,000

Trademarks 15,000

Discount on bonds payable 35,000

Deposits with advertising agency for ads to promote goodwill of company 10,000

Excess of cost over fair value of net identifiable assets of acquired subsidiary 75,000

Cost of equipment acquired for research and development projects; the equipment has an alternative future use 90,000

Costs of developing a secret formula for a product that is expected to be marketed for at least 20 years 80,000

Instructions

(a) On the basis of the information above, compute the total amount to be reported by Hyde for intangible assets on its balance sheet at year-end.

(b) If an item is not to be included in intangible assets, explain its proper treatment for reporting purposes.

Izzy Inc. purchased a patent for $350,000 which has an estimated useful life of 10 years. Its pattern of use or consumption cannot be reliably determined. Prepare the entry to record the amortization of the patent in its first year of use.

Where on the asset side of the balance sheet are debt investments classified as trading securities, available-for-sale securities, and held-to-maturity securities reported? Explain.
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