Question

Harris Company, which began operations in 2015, invests its idle cash in trading securities. The following transactions relate to its short-term investments in its trading securities in 2015 Mar 10 Purchased 2,400 shares of AOL at $61.15 per share plus a $1,545 commission. May 7 Purchased 5,000 shares of MTV at $36.25 per share plus a $2,955 commission. Sept. 1 Purchased 1,175 shares of UPS at $57.25 per share plus a $1,250 commission Dec. 31 Fair Value of the short-term investments in trading securities is $398,000 1. Prepare the journal entries to record the above transactions Date General Journal Debit Credit 3/10 Short-Term Investments Trading AOL 148,305 Cash 148,305 5/7 Short-Term Investments Trading MTV 184,205 Cash 184,205 9/1 Short-Term Investments Trading UPS 62,644 Cash 62,644 1 12/31 Fair Value Adjustment Trading 2.846 Unrealized Gain Income 2.846 2. Calculate the cost of the portfolio owned on December 31, 2015 148,305184,205 62,644 395,154 3. Calculate the Unrealized Gain or Loss on the portfolio on December 31,2015 398,000 395,1542,846 (gain) 4.Prepare the adjusting entry to record any necessary fair value adjustments for the portfolio of trading securities. Date General Journal Debit Credit 12/31 Fair Value Adjustment-Trading 2.846 Unrealized Gain Income 2,846 5. Calculate the ending value of the Fair Value- Trading account. Unadjusted balance $0 (first year in operation) Fair Value Adj - Trading $2,846 Dr. Ending balance: $2,846
Please help me with questions 4.(prepare the adjusting entry) and 5. (calculate the ending value of the fair value) at the bottom of the page.

Answer 1

ADJUSTMENT ENTRY FOR FAIR VALUE:		Debit $	Credit $
31-Dec-16	Fair Value Adj - trading	17540
	Unrealised Gain		17540
	(being fair value adjustment entry at year end)
T-ACCOUNTS OF :
FairValue Adjustment- Trading:
2015
Unrealised Gain	2846	CB	2846
Total	2846	Total	2846
2016
OB	2846	Unrealised Gain (reversal)	2846
Unrealised Gain	17540	CB	17540	826000-(148305+613850+46305)
Total	20386	Total	20386
Unrealised Gain - Income :
2015
CB	2846	Fair Value Adj - trading	2846
Total	2846	Total	2846
2016
Fair Value Adj. (reversal)	2846	OB	2846
CB	17540	Fair Value Adj - trading	17540	826000-(148305+613850+46305)
Total	20386	Total	20386
Cost Value of Portfolio on Dec 31, 2016 :
		Fair Valuation	Adjustment
AOL Shares	148305
SPW Shares	613850
Walmart Shares	46305
Total Cost Value	808460	826000	17540
Ending Balance on Dec 31, 2016:
Fair Value Adj. (reversal)	17540
Unrealised Gain - Income :	17540
Note: Fair Value Adj. - trading and Unrealised Gain- Income are the provisional accounts who
are required to be reversed next year and fresh adjustment entry will be passed. The actual
profit or loss is transferred to Profit or Loss on Sale of Securities A/c.