Question

On 1 November 20X8, Porter Company acquired the following FVTPL investments:

• Minto Corp.—3,700 common shares at $15 cash per share
• Pugwash Corp.—850 preferred shares at $25 cash per share

The annual reporting period ends 31 December. Quoted fair values on 31 December 20X8 were as follows:

• Minto Corporation common, $13
• Pugwash Corporation preferred, $28

The following information relates to 20X9:

2 March	Received cash dividends per share as follows: Minto Corporation, $2.10; and Pugwash Corporation, $1.20.
1 October	Sold 220 shares of Pugwash Corporation preferred at $31 per share.
31 December	Fair values were as follows: Minto common, $21, and Pugwash preferred, $27.

Required:
1. Prepare the entry for Porter Company to record the purchase of the securities. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

. 1. Record the acquisition of investment. Nov 1, 2008 (general journal)

2. Prepare the adjusting entries needed at the end of 20X8. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
1. Record the holding loss/gain on Pugwash Co. Shares.    31 Dec 2008

2. Record the holding loss/gain on Minto Co. Shares. 31 Dec 2008

3. Show the amount that would be reported in 20X8 earnings and the asset amounts on the statement of financial position.

	Earnings, 20X8: Statement of financial position, 31 December 20X8: FVTPL investments, at fair value

4. Prepare the all entries required in 20X9. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

• Record the dividends received. 2 Mar 2009
• Record the sale of 200 shares of Pugwash stock. 1 Oct 2009
• Record the adjusting entry to record fair value of Mint Co. shares. 31 Dec 2009
• Record the adjusting entry to record fair value of Pugwash Co. shares. 31 Dec 2009

5. Show the amount that would be reported in 20X9 earnings and the asset amounts on the statement of financial position.

	Earnings, 20X9: $0 Statement of financial position, 31 December 20X9: FVTPL investments, at fair value

6. Repeat part (5), assuming that both the investments were originally designated FVOCI-Equity investments. Include the balance of the AOCI equity reserve for holding gain/loss for the SFP amounts. The holding gain/loss amounts are not reclassified after realization.

	Earnings, 20X9: Investment revenue Statement of financial position, 31 December 20x9: FVTOCI investments, at fair value Other comprehensive income (loss)

Answer 1

Q1. Security purchase entries: Securities is being purchased in return of Cash/ bank Payment

Minto Corp Equity shares A/c Dr. 55,500

Pugwash Corp Preferred Shares A/c Dr. 21,250

To Cash/ Bank A/c Cr. 76,750

(Being Equity shares of Minto Corp & Preference shares of Pugwash Corp purchased)

Q2. (1 & 2) Entry to be passed at the end of year.

As per ASC 320, Trading securities should be valued at Fair value on year end. Therefore, following entry should be passed. Composite entry should be passed.

Pugwash Corp Preferred Shares A/c Dr. 2,550

Unrealised Loss on Investment A/c Dr. 4,850

To Minto Corp Equity shares A/c Cr. 7,400

(Unrealised loss due to fair value of investments)

3. Amount that would be reported in 20X8 earnings and the asset amounts on the statement of financial position.

Earnings 2018 - Unrealised loss on Investment 4850 (on Expense side)

Statement of financial position, 31 December 20X8:

FVTPL Investment, at fair value :

Minto Corp equity shares 48,100 (55,500 - 7,400)

Pugwash Corp prefered shares 23,800 (21,250+2,550)

4. Assuming dividend received in Bank A/c. Following entries will be passed:

Bank A/c Dr. 8,790

To Dividend Income 8,790

(Being Dividend income received from Investment)

Calculation of Dividend Income: 7,770 (3700*2.10) + 1,020 (850*1.2)

Sale of 200 shares of Pugwash Corp @ 31 (No. of shares sold in question & sub part of question are different i.e., 220 & 200. I have taken sale of 200 shares)

Bank A/c Dr. 6,200

To Pugwash Corp preferred shares a/c Cr. 5,600

To Profit on sale of Investment a/c Cr. 600

(Being sale of Inestment in Pugwash Corp)

Entry at the year end (Fair Value)

Minto Corp equity shares A/c Dr. 29,600

To Pugwash Corp prefered shares A/c Cr. 650

To Unrealised gain on Investment a/c Cr. 28,950

(Being Unrealised gain on invesment recognised in P&L A/c)

Q5. Amount that would be reported in 20X9 earnings and the asset amounts on the statement of financial position.

Earnings 20X9: Unrealised Gain on Investment A/c 28,950 ( on Income side)

Statement of financial position, 31 December 20X9:

FVTPL investments, at fair value:

Minto Corp equity shares 77,700 (3,700*21)

Pugwash Corp prefered shares 17,550 (650*27)