Vert Company purchased Dextrin common stock for $150,000. At December 31, Year 2, the Fair value...
Vert Company purchased Dextrin common stock for $150,000. At December 31, Year 2, the Fair value adjustment account had a debit balance of $10,000. On December 31, Year 3, the fair value of that investment was $154,000. Which of the following will be included in the related journal entry dated December 31, Year 3?
Multiple Choice
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Debit to Fair value adjustment for $4,000
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Credit to Fair value adjustment for $6,000
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Debit to Fair value adjustment for $14,000
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Credit to Fair value adjustment for $16,000
Homework Answers
Answer: Credit to Fair value adjustment for $6,000
Explanation:
i.'Fair value adjustment account' balance on Dec 31,Year 2 = $10,000 Dr.
ii.'Fair value adjustment account' balance on Dec 31,Year 3 = Fair value - Cost
= $154,000 - $150,000
= $4,000 Dr.
We have to decrease $10,000 Dr. balance to $4,000 Dr. balance.
So, it can be done by Credit to Fair value adjustment for $6,000
T-Account:
| Fair value adjustment | |||
| Beginning balance | $10,000 | ||
| Adjustment | $6,000 | ||
| Ending balance | $4,000 | ||
Thus,
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Debit to Fair value adjustment for $4,000 is incorrect
-
Credit to Fair value adjustment for $6,000 is correct
-
Debit to Fair value adjustment for $14,000 is incorrect
-
Credit to Fair value adjustment for $16,000 is incorrect
Add Answer to:
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