Question

Available for Sale Securities – this category no longer exists for equity securities, so if you come across someone talking about available for sale because they haven’t heard the news, make sure you give it trading securities treatment: At the beginning of 2018, ACE Company had the following portfolio of investments in available-for-sale securities (common stock): Security Cost 12/31/18 Fair Value A $20,000 $25,000 B $30,000 $29,000 Totals $50,000 $54,000 During 2019, the following transactions occurred: May 3: Purchased C securities (common stock) for $13,500 July 16: Sold all of the A securities for $25,000 Dec 31: Received dividends of $800 on the B and C securities, for which the following information was available: Security 12/31/19 Fair Value B $32,000 C $15,500 Required 1. Prepare journal entries for the 2019 activity 2. What is the balance in the Unrealized increase/decrease account on Dec 31, 2019? Where on the financial statements does the unrealized increase/decrease account appear?

Answer 1

Ques 1

Date	Accounts	debit	credit
May-03	Investment in availbale for sale securities	13500
	cash		13500
Jul-16	Cash	25000
	Investment in availbale for sale securities		20000
	Gain on sale of available for sale securities		5000
Jul-16	Unrealised inc/dec in value of available for sale securities	5000
	allowance for chanve in value of investment		5000
Dec-31	cash	800
	dividend revenue		800
Dec-31	Allowance for chanve in value of investment	5000
	Unrealised inc/dec in value of available for sale securities		5000

	Cost	Fair value-2018	Cumulative change in Fair value
Security
A	20000	25000	5000
B	30000	29000	-1000
total	50000	54000	4000
	Cost	Fair value-2019	Cumulative change in Fair value
Security
A	30000	32000	2000
B	13500	15500	2000
total	43500	47500	4000

Ques 2

T-Accounts

Allowance for change in value of investment
Beginning balance	4000
Jul-16		5000
Dec-31	5000
Ending balance	4000
Unrealised increase/decrease in value
Beginning balance		4000
Jul-16	5000
Dec-31		5000
Ending balance		4000