Therefore, the following adjusting entry should be made at the year-end: Unrealized Holding Gain or Loss - EQUITY 6,000 Securities Fair Value Adjustment (AFS) 6,000 Unrealized Holding Gain or Loss—Equity is reported as other comprehensive income and as a separate component in stockholders’ equity and not included in net income. The Securities Fair Value Adjustment (Available-for-Sale) account is a valuation account to the related investment account.
Exercise 17-9 (Available-for-Sale Seucrities Entries and Financial Statement Presentation) At December 31, 2010, the available-for-sale equity portfolio for Wenger, Inc is as follows: Security Cost FairValue Unrealized Gain/Loss A $17,500 $15,000 ($2,500) B 12,500 14,000 $1,500 C 23,000 25,500 $2,500 Total $53,000 $54,500 $1,500 Previous securities fair value adjustments balance - Dr 200 Securities fair value adjustment - Dr $1,300 On January 20, 2011, Wenger, Inc. sold security A for $15,300. The sale proceeds are net of brokerage fees. Instructions: (a) Prepare the adjusting entry at December 31, 2010, to report the portfolio at fair value. The portfolio should be reported at the fair value of $54,500. Since the cost of the portfolio is $53,00 the unrealized holding gain is $1,500, of which $200 is already recognized. Therefore, the Decembe 2010 adjusting entry should be: Securities Fair Value Adjustment - Available-for-Sale (AFS) securities 1,300 Unrealized Holding Gain or Loss—Equity 1,300 (b) Show the balance sheet presentation of the investment related accounts at December 31, 2010. (Ignore notes presentation). The unrealized holding gain of $1,500 (including the previous balance of $200) should be reported a an addition to stockholders’ equity and the Securities Fair Value Adjustment (Available-for-Sale) account balance of $1,500 should be added to the cost of the securities account. WENGER, INC. Balance Sheet As of December 31, 2010 Current assets: Available-for-sale securities $54,500 Stockholders’ equity: Common stock xxx,xxx Additional paid-in capital xxx,xxx Retained earnings xxx,xxx xxx,xxx Add: Accumulated other comprehensive income Total stockholders’ equity $xxx,xxx 1,500 *
*Note: The unrealized holding gain could also be disclosed. © Prepare the journal entry for the 2011 sale of security A. Computation of realized gain or loss on sale of stock: Net proceeds from sale of security A $15,300 Cost of security A 17,500 Loss on sale of stock ($2,200) January 20, 2011 Cash 15,300 Loss on Sale of Securities 2,200 Available-for-Sale Securities 17,500
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Exercise 17-10 (Comprehensive Income Disclosure) Assume the same information as E17-9 and that Wenger Inc. reports net income in 2010 of $120,000 and in 2011 of $140,000. Total holding gains (including any realized holding gain or loss) arising during 2011 total $30,000. Instructions: (a) Prepare a statement of comprehensive income for 2006 started with net income WENGER INC. Statement of Comprehensive Income For the Year Ended December 31, 2010 Net income $120,000 Other comprehensive income Unrealized holding gain arising during year 1,300 Comprehensive income $121,300 (b) Prepare a statement of comprehensive income for 2011 starting with net income.
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- Fall '09
- unrealized holding gain, Available-for-Sale Securities, Trading Securities