Question

Carpark Services began operations in 20X1 and maintains long-term investments in available-for-sale securities. The year-end cost and fair values for its portfolio of these investments follow. The year end adjusting entry to record the unrealized gain/loss at December 31, 20X1 is: Available-for-Sale Securities December 31, 20x1 December 31, 20x2 December 31, 20X3 Cost $295,000 $376,000 $446,000 Fair Value $277,000 $396,000 $495,000 Multiple Choice O Debit Unrealized Gain-Equity $18,000: Credit Fair Value Adjustment - Available-for-Sale (LT) $18,000. 0 O Debit Unrealized Loss - Equity $18,000: Credit Fair Value Adjustment - Avallable-for-Sale (LT) $18.000. O Debit Fair Value Adjustment - Available-for-Sale (LT) $18.000: Credit Unrealized Loss - Equity $18.000. 0 Debit Unrealized Loss - Income $18,000: Credit Fair Value Adjustment - Available-for-Sale (ST) $18,000 O Debit Fair Value Adjustment - Available-for-Sale (LT) $18,000: Credit Unrealized Gain - Equity $18.000.

Answer 1

Solution:

Unrealized holding gain (Loss) for 20X1 = Fair value - costs = $277,000 - $295,000 = ($18,000)

Adjusting entry to record the unrealized gain/loss is "Debit Unrealized loss - equity $18,000; credit fair value adjustment - Available for sale (LT) $18,000"

Hence 2nd option is correct.