Question

[The following information applies to the questions displayed below.]

Stoll Co.'s long-term available-for-sale portfolio at the start of this year consists of the following.

Available-for-Sale Securities	Cost			Fair Value
Company A bonds	$	532,300		$	490,000
Company B notes		159,080			148,000
Company C bonds		662,500			649,600

Stoll enters into the following transactions involving its available-for-sale debt securities this year.

Jan.		29		Sold one-half of the Company B notes for $78,920.
July		6		Purchased bonds of Company X for $122,500.
Nov.		13		Purchased notes of Company Z for $267,700.
Dec.		9		Sold all of the bonds of Company A for $516,900

The fair values at December 31 are B, $84,000; C, $600,600; X, $113,000; and Z, $280,000.

1. Prepare journal entries to record these transactions, including the December 31 adjusting entry to record the fair value adjustment for the long-term investments in available-for-sale securities.

• 1

  Sold one-half of the notes Company B for $78,920.

• 2

  Purchased bonds of Company X for $122,500.

• 3

  Purchased notes of Company Z for $267,700.

• 4

  Sold all of the bonds of Company A for $516,900.

• 5

  Record the year-end adjusting entry for the securities portfolio as of December 31.

2. Determine the amount Stoll reports on its December 31 balance sheet for its long-term investments in available-for-sale securities.

	Fair Value Adjustment Computation - Available-for-Sale Securities December 31 AFS Securities Cost Fair Value Unrealized Amount Company B notes Company C bonds Company W notes Company X bonds Total $0 $0 -1 -1 -1

3. What amount of gains or losses on transactions relating to long-term investments in available-for-sale debt securities does Stoll report on its income statement for this year?

Answer 1

Stoll Co. Requirement 1&2 Unrealized amt. Gain or loss Fair value Adjustment Computation - Available for Sale Securities December 31 2017 AFS Securities Cost Fair Value Company B Common Stock 79540 84000 Company C Common Stock 662500 600600 Company X Common Stock 122500 113000 Company z Common Stock 267700 280000 1132240 1077600 54640 Loss Required December 31 2017 Balance in the Fair Value Adjustment December 31, 2016 Balance in Fair value adjustment account December 31, 2017 required adjustment to the Fair Value Adjustment 54640 66280 11640 Credit Credit Debit a b b-a Company A Company B Company C Cost 532300 159080 662500 Fair Value Unrealized amt. 490000 42300 148000 11080 649600 12900 66280 Debit in $ Credit in $ Journal Enteries Particulars Dec-31 Fair Value Adjustment - AFS To Unrealized loss - Equity 11640 11640 Requirement 3 Year 2017 realized gains (losses) Stock shares of Company B stock shares of Company A stock Realized gain (loss) Cost 79540 532300 Sales 78920 516900 Gain (loss) -620 -15400 - 16020