Ans:
Loss during Fair value Adjustment = Fair Value – Investment
= $1,359,000 - $ 1,995,000
Loss during Fair value Adjustment = 636,000
There is already a reserve for 210,000 so we need to create additional 426,000 reserve.
Investment in IBM common shares $ 1,995,000
Less: Fair value adjustment (636,000)
$ 1,359,000
Accumulated Unrealized holding Losses and Gains (Dr.) 426,000
Fair Value Adjustment (Cr.) 426,000
2.
Loss during Fair value Adjustment = Fair Value – Investment
= $1,810,000 - $ 1,995,000
Loss during Fair value Adjustment = 185,000
There is already a reserve for 210,000 so we need to decrease reserve by 25,000
Investment in IBM common shares $ 1,995,000
Less: Fair value adjustment (185,000)
$ 1,810,000
Fair Value Adjustment (Dr.) 25,000
Accumulated Unrealized holding Losses and Gains (Cr.) 25,000
3.
Profit during Fair value Adjustment = Fair Value – Investment
= $2,010,000 - $ 1,995,000
Profit during Fair value Adjustment = 15,000
There is already a reserve for 210,000 so we need to decrease the fund by 225,000(210,000+15,000). So that profit of 15,000 can recorded.
Investment in IBM common shares $ 1,995,000
Add: Fair value adjustment 15,000
$ 2,010,000
Fair Value Adjustment (Dr.) 210,000
Accumulated Unrealized holding Losses and Gains (Cr.) 210,000
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