Question

On December 21, 2020, Marigold Company provided you with the following information regarding its equity investments. December 31, 2020 Investments (Trading) Cost Fair Value Unrealized Gain (Loss) Clemson Corp. stock $20,300 $19,200 $(1,100) Colorado Co.stock 10,600 9,500 (1,100) Buffaloes Co. stock 20,300 20,900 600 Total of portfolio $51,200 $49,600 (1,600) Previous fair value adjustment balance Fair value adjustment-Cr. $(1,600) During 2021, Colorado Co.stock was sold for $10,010. The fair value of the stock on December 31, 2021, was Clemson Corp.stock-$19,290; Buffaloes Co. stock-$20,800. None of the equity investments result in significant influence. (a) Prepare the adjusting journal entry needed on December 31, 2020. (b) Prepare the journal entry to record the sale of the Colorado Co. stock during 2021. (c) Prepare the adjusting journal entry needed on December 31, 2021.

Answer 1

Solution:

Sunland Company
No.	General Journal	Debit	Credit
a.	Unrealized Holding gain or loss Dr	$1,600
	To Fair Value Adjustment		$1,600
	(To record Unrealized gain or loss at December 31, 2020)
b.	Cash Dr	$10,010
	Loss on Sale of Investment	$590
	To Trading Investments		$10,600
	(To record sale of colorado stock during 2021)
c.	Fair Value Adjustment Dr (Note)	$1,090
	To Unrealized Holding gain or loss		$1,090
	(To record Unrealized gain or loss at December 31, 2021)

Note:
Computation of Unrealized gain or loss on December 31, 2021
Investment (Trading)	Cost	Fair Value at Dec 31 2021	Unrealized holding Gain (Loss)
Clemson Corp.	20300	19290	-1010
Buffaloes co.	20300	20800	500
Total			-510
Previous fair value adjustment balance			1600
Fair Value adjustment 2021			1090