Question

Bonita Company has the following securities in its investment portfolio on December 31, 2020 (all securities were purchased in 2020): (1) 3,100 shares of Anderson Co. common stock which cost $58,900, (2) 9,800 shares of Munter Ltd. common stock which cost $548,800, and (3) 5,700 shares of King Company preferred stock which cost $233,700. The Fair Value Adjustment account shows a credit of $10,200 at the end of 2020.

In 2021, Bonita completed the following securities transactions.

1.		On January 15, sold 3,100 shares of Anderson’s common stock at $22 per share less fees of $2,100.
2.		On April 17, purchased 900 shares of Castle’s common stock at $32 per share plus fees of $2,150

On December 31, 2021, the market prices per share of these securities were Munter $64, King $40, and Castle $23. In addition, the accounting supervisor of Bonita told you that, even though all these securities have readily determinable fair values, Bonita will not actively trade these securities because the top management intends to hold them for more than one year.

A)Prepare the entry for the security sale on January 15, 2021.

B)Prepare the journal entry to record the security purchase on April 17, 2021

C) Compute the unrealized gains or losses. Prepare the adjusting entry for Parnevik on December 31, 2021

Answer 1

A)	Date	Account Titles and Explanation	Debit	Credit
	Jan. 15, 2021	Cash [(3100 x $22) - $2100]	66100
		Gain on sale of investments		7200
		Equity investments		58900
		(To record the security sale)
B)	Date	Account Titles and Explanation	Debit	Credit
	Apr. 17, 2021	Equity investment	30950
		Cash [(900 x $32) + $2150]		30950
		(To record the security purchase)
C)	Date	Account Titles and Explanation	Debit	Credit
	Dec. 31, 2021	Fair value adjustment	72650
		Unrealized holding gain or loss-Equity		72650
		(To record investments at fair value)

Working:

Investment	# of shares	Cost	Fair Value	Unrealized gain (loss)
Munter Ltd.	9800	548800	627200	78400
King Co.	5700	233700	228000	-5700
Castle	900	30950	20700	-10250
		813450	875900	62450
Fair value adjustment (balance required) Dr.				62450
Existing balance Cr.				10200
Adjustment required Dr.				72650