Graded Homework_Chapter 15_Annotated

Graded Homework_Chapter 15_Annotated - Quick Study 15-4...

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Quick Study 15-4 Unrealized gains/losses and Market Adjustments are done at the “portfolio” level – In this case Fender Co. only has 1 security in its portfolio. 1. 2011 Dec. 31 Unrealized Loss—Equity . ............................................. 6,000 Fair Value Adjustment—Available-for-Sale (ST) . . 6,000 To reflect an unrealized loss in fair value of the available-for-sale securities’ portfolio. Unrealized loss or gain is always reports the “residual balance” to be shown in the equity account: there is only an “unrealized loss” OR an “unrealized gain” account in the equity section. Market Adjustment is always the “distance traveled” during the year. No actual gain or loss has occurred since the securities have not been sold 2. Both accounts in part (1) are reported on the balance sheet. i. The Unrealized Loss is reported as a reduction in the equity section (and in comprehensive income). ii. The credit balance in the Fair Value Adjustment—Available-for-Sale (ST) account is a contra asset account . It reduces the (cost) balance in the Short-Term Investments—Available-for-Sale account to its fair value. 3. 2012 Apr. 6 Cash . .......................................................................... 52,000 Gain on Sale of Short-Term Investments . ....... 2,000 Short-Term Investments—AFS . ....................... 50,000 To record sale of one-half of the available-for-sale securities. (Cost = $100,000 x 1/2) This entry records the sale of the security - - now we have a real “gain/loss” so the gain in this case is “realized” and will be reported on the annual Income Statement (P&L) Quick Study 15-5 May 7 Short-Term Investments—AFS (Lov) . ....................... 2,700 Cash . ................................................................ 2,700 Purchased 100 shares at $25 plus $200 fee. remember to add costs such as brokerage fees to the cost basis . June 6 Cash . ...................................................................... 2,725 Gain on Sale of Short-Term Investments . .... 25 Short-Term Investments—AFS (Lov) . .......... 2,700 To record sale of available-for-sale securities. This entry records the sale of the security - - now we have a real “gain/loss” so the gain in this case is “realized” and will be reported on the annual Income Statement (P&L)
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Exercise 15-2 a. Mar. 22 Short-Term Investments—Trading (FIX) . .......... 21,150 Cash . ............................................................... 21,150 Purchased 700 shares of stock for (700 x $30) + $150 brokerage fee. remember to add costs such as brokerage fees to the cost basis . b. Sept. 1 Cash . ..................................................................... 700 Dividend Revenue . ........................................ 700 Received dividend on stock (700 x $1.00). c. Oct. 8 Cash* . ................................................................... 13,860 Short-Term Investments—Trading (FIX)** . ... 10,575 Gain on Sale of Short-Term Investments . ....... 3,285 Sold 350 shares of stock. * [(350 x $40) - $140 ] **($21,150/2) Remember on a sale the expenses reduce the proceeds Exercise 15-9 Note: These are “Available for Sale” securities, accounted using the “Market Value Method”. Since these are “Available for Sale” VICE “Trading Securities” any Unrealized Gain/Loss is reflected in the Stockholders’ Equity Section of the Balance Sheet. Computation of Fair Value Adjustment You compute the “mark-to-market” on an individual security basis, but post the result on a “portfolio basis”. Note also, that the securities can be debt or equity. Note also that they can be long-term or short-term.
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Graded Homework_Chapter 15_Annotated - Quick Study 15-4...

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