Question

Fair Value Journal Entries, Available-for-Sale Investments

The investments of Steelers Inc. include a single investment: 10,000 shares of Bengals Inc. common stock purchased on September 12, Year 1, for $13 per share including brokerage commission. These shares were classified as available-for-sale securities. As of the December 31, Year 1, balance sheet date, the share price declined to $10 per share.

a. Journalize the entries to acquire the investment on September 12 and record the adjustment to fair value on December 31, Year 1.

Year 1 Sept. 12
Year 1 Dec. 31

b. How is the unrealized gain or loss for available-for-sale investments disclosed on the financial statements?

Unrealized Gain (Loss) on Available-for-Sale Investments is reported in the   of the  .

Answer 1

Available for sale are those securities that are held with intention of selling them before they mature or due date.

a.

Date	Particulars	Debit ($)	Credit ($)
Sept 12	Investments- Bengals Inc stock (10,000 X13)	130,000
	Cash		130,000
	(To record the investment)
Dec 31	Unrealized gain (loss) on available for sale investments	30,000
	Valuation allowance for available-for-sale investments ( 10-13) X 10,000		30,000
	(To record adjustments for available-for-sale securities at year end)

b.

Unrealized gain (loss) on available for sale investments shall be reported on Stockholders’ equity section of the balance sheet. It should be separately recognized from retained earnings or paid-in capital accounts. On dec 31, Year 1, the account shall show debit balance of $ 30,000 which would be subtracted from Stockholders’ equity balance.