Unrealized Holding Gain or Loss Equity 1600 Securities Fair

Unrealized holding gain or loss equity 1600

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December 31, 2002 Unrealized Holding Gain or Loss (Equity) ................................................. 1,600 Securities Fair Value Adjustment (Available-for-Sale) ..................................................................... 1,600 Balance Sheet—December 31, 2002 Long-term investment: Available-for-Sale Securities, at cost $50,000 Less: Securities fair value adjustment 1,600 Available-for-Sale Securities, at fair value $48,400 Stockholders’ equity: Common stock $ XXX Additional paid-in capital XXX Retained earnings XXX Accumulated other comprehensive loss (1,600) Total stockholders’ equity $ XXX Securities classified as available-for-sale securities should initially be recorded at their acquisition price. The valuation of these securities is subsequently reported at their fair value. Any changes in the fair value of the securities are recorded in an unrealized holding gain or loss account, which is included as other comprehensive income and as a separate component of stockholders’ equity. Assuming the company prepared a statement of comprehensive income, it would show an unrealized holding loss of $1,600 during the period. (c) No, James Joyce Company did not properly account for the sale of the D. H. Lawrence Company stock. The cost basis of the D. H. Lawrence stock is still $10,000. Therefore, James Joyce should have recorded an $800 ($9,200 – $10,000) loss from the sale of the securities. Cash .................................................................................................. 9,200 Loss on Sale of Securities ................................................................... 800 Available-for-Sale Securities ...................................................... 10,000 (d) December 31, 2003 Securities Fair Value Adjustment (Available-for-Sale) ............................................................................... 2,000 Unrealized Holding Gain or Loss—Equity ........................................ 2,000 Available-for-sale securities are reported at their fair value. Therefore, an adjusting entry must be made to show the $400 increase in the fair value of the portfolio. The unrealized holding loss from the previous period must be reversed and the increase of $400 must be recorded. Securities Cost Fair Value Unrealized Gain (Loss) Anna Wickham Corp. stock $20,000 $19,900 ( $ (100) Edith Sitwell Company stock 20,000 20,500 ( 500 ) Total of portfolio $40,000 $40,400 $ 400 Previous fair value adjustment balance—Cr. ( (1,600) Securities fair value adjustment—Dr. ( $2,000
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17-65 CASE 17-3 Situation 1 The carrying value of the trading security will be the fair value on the date of the transfer. The unrealized holding loss, the difference between the current fair value and the cost, will be recognized immediately. Situation 2 When a decrease in the fair value of a security is considered to be other than temporary, an impairment in the value of the security has occurred. As a result, the security is written down to the fair value and this becomes the new cost basis of the security. The security is reported on the balance sheet at its current fair value. The amount of the write-down is included in earnings as a realized loss. Situation 3 Both the portfolio of trading securities and the portfolio of available-for-sale securities are reported at their fair value. The $13,500 decrease in fair value of the trading portfolio is recorded in the unrealized holding loss account and is included in earnings for the period. The $28,600 increase in fair value of the available-for-sale portfolio is recorded in the unrealized holding gain account and is not included in earnings for the period. Instead, the unrealized holding gain is shown as other
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