At the beginning of 2019, Ace Company had the following portfolio of investments in available-for-sale debt securities (all of which were acquired at par value):
Security |
Cost |
1/1/19 Fair Value |
A | $15,000 | $19,000 |
B | 23,000 | 22,000 |
Totals | $38,000 | $41,000 |
During 2019, the following transactions occurred:
Transactions: | ||
May | 3 | Purchased C debt securities at their par value for $45,000. |
July | 1 | Sold all of the A securities for $19,000 plus interest of $1,000. |
Dec. | 31 | Received interest of $1,000 on the B and C securities. Additionally the following information was available: |
Security |
12/31/19 Fair Value |
B | $26,000 |
C | 47,000 |
Required:
1. | Prepare journal entries to record the preceding information. |
2. | What is the balance in the Unrealized Holding Gain/Loss account on December 31, 2019? |
3. | Next Level What justification does the FASB give for its treatment of unrealized holding gains and losses for available-for-sale securities? |
1) Journal Entries
Date |
General Journal |
Debit |
Credit |
May.3, 2019 |
Available for sale debt securities |
$45,000 |
|
Cash |
$45,000 |
||
(Purchased debt securities) |
|||
July.1, 2019 |
Cash |
$20,000 |
|
Unrealized Gain - OCI |
$4,000 |
||
Available for sale debt securities (A) |
$19,000 |
||
Interest Income |
$1,000 |
||
Realized Gain on Sale of Debt Security A |
$4000 |
||
Dec.31, 2019 |
Cash |
$1000 |
|
Interest Income |
$1000 |
||
(Interest received on B and C debt securities) |
|||
Dec.31, 2019 |
Available for sale debt securities (B) |
$5,000 |
|
Available for sale debt securities (C ) |
$3,000 |
||
Unrealized Gain (loss) - OCI |
$8,000 |
||
(Fair value adjustment as on Dec31, 2018) |
|||
(Unrealized Gain (B) = 34000 - 29,000 = $5,000) |
|||
(Unrealized Gain (C ) = 53,000 - 50,000 = $3,000) |
Note 1 --- Unrealized Gain / (Loss) as on 1/1/19
Cost |
Fair Value 1/1/19 |
Unrealized Gain (Loss) |
|
Security A |
$15,000 |
$19,000 |
$4000 |
Security B |
$23000 |
$22000 |
-$1,000 |
2) Unrealized Gain (loss) balance as on Dec.31, 2019
Beginning balance of Unrealized Gain / (Loss) of Security B |
($1,000) |
Plus: Fair Value adjustment as on Dec.31, 2019 |
|
-- Unrealized Gain on available for sale securities as on Dec31, 2019 |
|
Security B (26000 - 22,000) |
$4000 |
Security C (47,000 – 45,000) |
$2,000 |
Unrealized Gain Account balance as on Dec 31, 2019 |
$6,000 |
3) Debt securities that are bought and held principally for the purpose of selling them in the near term are classified as available for sale securities and reported at fair value, with unrealized gain and losses included in earnings.
The unrealized gain will not be actually realized until the company actually sells the stock and collects the cash.
At the beginning of 2019, Ace Company had the following portfolio of investments in available-for-sale debt...
At the beginning of 2019, Ace Company had the following
portfolio of investments in available-for-sale debt securities (all
of which were acquired at par value):
Security
Cost
1/1/19 Fair Value
A
$35,000
$44,000
B
53,000
50,000
Totals
$88,000
$94,000
During 2019, the following transactions occurred:
Transactions:
May
3
Purchased C debt securities at their par value for
$50,000.
July
1
Sold all of the A securities for $44,000 plus interest of
$1,000.
Dec.
31
Received interest of $1,000 on the...
At the beginning of 2018, Ace Company had the following portfolio of investments in available-for-sale debt securities (all of which were acquired at par value): Security Cost 1/1/18 Fair Value A $25,000 $31,000 B 38,000 36,000 Totals $63,000 $67,000 During 2018, the following transactions occurred: May 3 Purchased C debt securities at their par value for $50,000. July 1 Sold all of the A securities for $31,000 plus interest of $1,000. Dec. 31 Received interest of $1,000 on the B...
At the beginning of 2018, Ace Company had the following portfolio of investments in available-for-sale debt securities (all of which were acquired at par value): Security Cost 1/1/18 Fair Value A $35,000 $44,000 B 53,000 50,000 Totals $88,000 $94,000 During 2018, the following transactions occurred: May 3 Purchased C debt securities at their par value for $50,000. July 1 Sold all of the A securities for $44,000 plus interest of $1,000. Dec. 31 Received interest of $1,000 on the B...
Available-for-Sale Securities Instructions Chart of Accounts General Journal Analysis Next Level Instructions At the beginning of 2018, Ace Company had the following portfolio of investments in available-for-sale debt securities (all of which were acquired at par value): Security Cost 1/1/18 Fair Value A $35,000 $44,000 B 53,000 50,000 Totals $88,000 $94,000 During 2018, the following transactions occurred: May 3 Purchased C debt securities at their par value for $50,000. July 1 Sold all of the A securities for $44,000 plus...
Cost 30.000 Purcha Sold se 525.000 12/31/2019 For Vale Required: room Next lae What - A lable for Sale Securities Company Exercises 13.53 E13-12 Availa 10 13.4 met 4 Security Available for Sale Securities at the beginning of 2010 Ace Company had the following portfolio of me ments in available for sale debt securities (all of which were acquired at par value 1/1/2019 Fair Value $20,000 $25,000 30,000 29,000 $50,000 During 2019, the following transactions occurred: Cost Totals $54,000 Mai...
At the end of 2018, Terry Company prepared the following
schedule of investments in available-for-sale debt securities (all
of which were acquired at par value):
Company
Amortized Cost
12/31/18 Fair Value
Cumulative Change in Fair Value
Morgan Company
$35,000
$34,200
$(800)
Nance Company
60,000
63,200
3,200
Totals
$95,000
$97,400
$2,400
During 2019, the following transactions occurred:
July 1
Purchased Oscar Company debt securities with a par value of
100,000 for $97,000. The securities carry an annual interest rate
of 10%,...
On December 31, 2018, Marsh Company held Xenon Company bonds in
its portfolio of available-for-sale securities. The bonds have a
par value of $14,000, carry a 10% annual interest rate, mature in
2025, and had originally been purchased at par. The market value of
the bonds at December 31, 2018 was $12,000. The December 31, 2018,
balance sheet showed the following:
Marsh Company
Partial Balance Sheet
December 31, 2018
1
Assets
2
Investment in Available-for-Sale Securities
$14,000.00
3
Less: Allowance...
5. On December 31, 2018, Marsh Company held Xenon Company bonds
in its portfolio of available-for-sale securities. The bonds have a
par value of $14,000, carry a 10% annual interest rate, mature in
2025, and had originally been purchased at par. The market value of
the bonds at December 31, 2018 was $12,000. The December 31, 2018,
balance sheet showed the following:
Marsh Company
Partial Balance Sheet
December 31, 2018
1
Assets
2
Investment in Available-for-Sale Securities
$14,000.00
3
Less:...
At the end of 2018, Terry Company prepared the following schedule of investments in available-for-sale debt securities (all of which were acquired at par value): Company Amortized Cost 12/31/18 Fair Value Cumulative Change in Fair Value Morgan Company $35,000 $34,200 $(800) Nance Company 60,000 63,200 3,200 Totals $95,000 $97,400 $2,400 During 2019, the following transactions occurred: July 1 Purchased Oscar Company debt securities with a par value of 100,000 for $97,000. The securities carry an annual interest rate of 10%,...
Available for Sale Securities – this category no longer exists for equity securities, so if you come across someone talking about available for sale because they haven’t heard the news, make sure you give it trading securities treatment: At the beginning of 2018, ACE Company had the following portfolio of investments in available-for-sale securities (common stock): Security Cost 12/31/18 Fair Value A $20,000 $25,000 B $30,000 $29,000 Totals $50,000 $54,000 During 2019, the following transactions occurred: May 3: Purchased C...