Question

12 HW 6 (155,000 $1,290,000 Print 2. $1,299,000 Journal entry worksheet <Prev 6of 10 Next >

Answer 1

Required 1 :

Loss during Fair value Adjustment = Fair Value – Investment

$1199,000 - $ 1,445,000

Loss during Fair value Adjustment = 246,000

There is already a reserve for 155,000 so we need to create additional 91,000 reserve.

Investment in IBM common shares $ 1,445,000

Less: Fair value adjustment (246,000)

$ 1,199,000

Accumulated Unrealized holding Losses and Gains (Dr.) 91,000

Fair Value Adjustment (Cr.) 91,000

Required 2 :

Loss during Fair value Adjustment = Fair Value – Investment

$1,299,000 - $ 1,445,000

Loss during Fair value Adjustment = 146,000

There is already a reserve for 155,000 so we need to decrease reserve by 9,000

Investment in IBM common shares $ 1,445,000

Less: Fair value adjustment (146,000)

$ 1,299,000

Fair Value Adjustment (Dr.) 9,000

Accumulated Unrealized holding Losses and Gains (Cr.) 9,000

Required 3 :

Profit during Fair value Adjustment = Fair Value – Investment

$1,460,000 - $ 1,445,000

Profit during Fair value Adjustment = 15,000

There is already a reserve for 155,000 so we need to decrease the fund by 170,000(155,000+15,000). So that profit of 15,000 can re recorded.

Investment in IBM common shares $ 1,445,000

Add: Fair value adjustment 15,000

$ 1,460,000

Fair Value Adjustment (Dr.)                      $ 170,000

Accumulated Unrealized holding Losses and Gains (Cr.)             $ 170,000