Question

In January 2022, the management of Crane Company concludes that it has sufficient cash to purchase some short-term investments in debt and stock securities. During the year, the following transactions occurred. Jan. 1 Purchased 74 $1,000, 8% TRC bonds for $74,000. Interest is payable annually on December 31. Feb. 1 Purchased 1,200 shares of LAF common stock for $51,600. Mar. 1 Purchased 530 shares of NCL common stock for $19,610. July 1 Received a cash dividend of $0.80 per share on the LAF common stock. Aug. 1 Sold 212 shares of LAF common stock at $42 per share. Sept. 1 Received $2 per share cash dividend on the NCL common stock. Dec. 31 Received the annual interest on the TRC bonds. Dec. 31 Sold the TRC bonds for $79,700. At December 31, the fair values of the LAF and NCL common stocks were $39 and $30 per share, respectively. These stock investments by Crane Company provide less than a 20% ownership interest.

Find the adjusting entry.

Answer 1

Solution

Adjustment Journal entries
Date	Account details	Debit	Credit
31st December	Unrealized loss on Equity investment	7662
	Equity Investment -Fair value adjustment (LAF)		3952
	Equity investment - Fair value adjustment (NCL)		3710
	(being closing shares of equity investment being revalued as per fair value)
Workings
Stock :- LAF
Details	No of shares	Price/share ($)	Amount ($)
Purchased	1200	43	51600
Sold	212
Balance	988	43	42484
Fair value	988	39	38532
		Loss	3952
Stock :- NCL
Details	No of shares	Price/share ($)	Amount ($)
Purchased	530	37	19610
Balance	530	37	19610
Fair value	530	30	15900
		Loss	3710