Question

Videos Account for equity Securities within for equity securities with insignificant L O Required information Knowledge Check 01 Jerome has insignificant influence of Melina Corporation because it owns less than 20% of the voting stock. The cost of the Melina stock is $5,000 and has a fair value of $6,000 on December 31 at the end of the first year it held the securities. Complete the necessary adjusting entry selecting the account names from the pull-down menus and entering dollar amounts in the debit and credit columns View transaction list Journal entry worksheet Jerome has insignificant influence of Melina Corporation because it owns less than 20% of the voting stock. The cost of the Melina stock is $5,000 and has a fair value of 56.000 on December 31 at the end of the first year it held the securities. Complete the necessary adjusting entry selecting the account Note: Enter debts before credits General Journal Debit Credit < Prev 234 of 4 !! Next > MacBook Pro xlclr BNC
requires explanation

Answer 1

Solution:

Adjusting Entry as on December 31st.

Date	General Journal	Debit	Credit
Dec. 31	Securities Fair Value Adjustment ($6000 - $ 5000)	$        1,000
	Unrealized holding gain / ( loss )		$           1,000
	( Being fair value adjustment)

Explanation:

1) Here Jerome has insignificant influence on Melina Corporation because of holding less than 20% voting right.

2) In such cases, we will record this investment as per fair value basis.

3) Under fair value method, Unrealized holding gain or loss are recorded at the end of the year.

4) In this question, fair value of equity securities is $ 6,000. So, there is $1000 increase in fair value from the time of purchase. For such increase in fair value is recorded.