Problem 15-3A Debt investments in available-for-sale securities; unrealized and realized gains and losses LO P3Skip to question [The following information applies to the questions displayed below.] Stoll Co.'s long-term available-for-sale portfolio at the start of this year consists of the following. Available-for-Sale SecuritiesCostFair ValueCompany A bonds$533,600 $492,000 Company B notes 159,310 150,000 Company C bonds 661,900 641,950 Stoll enters into the following transactions involving its available-for-sale debt securities this year. Jan. 29 Sold one-half of the Company B notes for $78,430.July 6 Purchased bonds of Company X for $120,800.Nov. 13 Purchased notes of Company Z for $267,100.Dec. 9 Sold all of the bonds of Company A for $524,100.The fair values at December 31 are B, $82,500; C, $609,100; X, $118,000; and Z, $279,000. The task is to determine the amount Stoll reports on its December 31 balance sheet for its long-term investments in available-for-sale securities. Below is a detailed explanation of the table and required computations:### Table: Fair Value Adjustment Computation - Available-for-Sale Securities#### December 31 AFS Securities| Security | Cost | Fair Value | Unrealized Amount | Gain or Loss? ||-----------------|----------|------------|-------------------|---------------|| Company B notes | $79,655 | | | || Company C bonds | $661,900 | $609,100 | | || Company X bonds | $120,800 | $118,000 | | || Company Z notes | $267,100 | | | || **Total** | $1,129,455 | $727,100 | | Loss |- **Unrealized Amount** represents the difference between the cost and the fair value.- **Total Cost** is $1,129,455.- **Total Fair Value** is $727,100.- **Total Unrealized Amount** indicates a loss of $3.### Required Adjustments1. **Required 2 December 31 Balance in the Fair Value Adjustment Account:** - Designated as a Credit.2. **Balance at Beginning of Year in the Fair Value Adjustment Account:** - Amount: $70,860 (Credit).3. **December 31 Required Adjustment to the Fair Value Adjustment Account:** - Designated as a Debit.### Footer Information- **Balance at Beginning of Year** is $70,860.- There is no change indicated with “0” at the end of the table.This information is critical for accurately reporting the fair value of long-term investments, specifically for available-for-sale securities, in financial statements. Adjustments to the Fair Value Adjustment account reflect changes in market conditions, ensuring that the balance sheet provides a true representation of the company's financial status. **Journal Entries for Long-term Investments in Available-for-Sale Securities**Prepare journal entries to record these transactions, including the December 31 adjusting entry to record the fair value adjustment for long-term investments in available-for-sale securities.| No | Date | General Journal | Debit | Credit ||----|----------|--------------------------------------|---------|---------|| 1 | Jan. 29 | Cash | 78,430 | || | | Loss on sale of debt investments | 1,225 | || | | Debt investments - AFS | | 79,655 || 2 | Jul. 06 | Debt investments - AFS | 120,800 | || | | Cash | | 120,800 || 3 | Nov. 13 | Debt investments - AFS | 267,100 | || | | Cash | | 267,100 || 4 | Dec. 9 | Cash | 70,000 | || | | Loss on sale of debt investments | 5,200 | || | | Debt investments - AFS | | 75,200 || 5 | Dec. 31 | Fair value adjustment - AFS | 12,375 | || | | Unrealized loss - Equity | | 12,375 |### Explanation: - **AFS** stands for Available-For-Sale securities, a category used for debt or equity securities not classified as held-to-maturity or trading securities.- Entries track cash transactions related to sales or purchases of investments and adjustments to fair value at year-end.- Unrealized gains or losses are recognized in equity on December 31st to reflect changes in market value. This structured approach ensures accurate financial statement representations for investment activities.

Dec. 9 Cash A/c 524,100 Debt investment AFS 492,000 Gain on available for sale…

Answered: No Date General Journal Debit Credit 1…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Problem 15-3A Debt investments in available-for-sale securities; unrealized and realized gains and losses LO P3

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[The following information applies to the questions displayed below.]

Stoll Co.'s long-term available-for-sale portfolio at the start of this year consists of the following.

Available-for-Sale Securities	Cost	Fair Value
Company A bonds	$	533,600	$	492,000
Company B notes		159,310		150,000
Company C bonds		661,900		641,950

Stoll enters into the following transactions involving its available-for-sale debt securities this year.

Jan.	29	Sold one-half of the Company B notes for $78,430.
July	6	Purchased bonds of Company X for $120,800.
Nov.	13	Purchased notes of Company Z for $267,100.
Dec.	9	Sold all of the bonds of Company A for $524,100.

The fair values at December 31 are B, $82,500; C, $609,100; X, $118,000; and Z, $279,000.

The task is to determine the amount Stoll reports on its December 31 balance sheet for its long-term investments in available-for-sale securities. Below is a detailed explanation of the table and required computations:

### Table: Fair Value Adjustment Computation - Available-for-Sale Securities

#### December 31 AFS Securities

| Security | Cost | Fair Value | Unrealized Amount | Gain or Loss? |
|-----------------|----------|------------|-------------------|---------------|
| Company B notes | $79,655 | | | |
| Company C bonds | $661,900 | $609,100 | | |
| Company X bonds | $120,800 | $118,000 | | |
| Company Z notes | $267,100 | | | |
| **Total** | $1,129,455 | $727,100 | | Loss |

- **Unrealized Amount** represents the difference between the cost and the fair value.
- **Total Cost** is $1,129,455.
- **Total Fair Value** is $727,100.
- **Total Unrealized Amount** indicates a loss of $3.

### Required Adjustments

1. **Required 2 December 31 Balance in the Fair Value Adjustment Account:**
- Designated as a Credit.

2. **Balance at Beginning of Year in the Fair Value Adjustment Account:**
- Amount: $70,860 (Credit).

3. **December 31 Required Adjustment to the Fair Value Adjustment Account:**
- Designated as a Debit.

### Footer Information

- **Balance at Beginning of Year** is $70,860.
- There is no change indicated with “0” at the end of the table.

This information is critical for accurately reporting the fair value of long-term investments, specifically for available-for-sale securities, in financial statements. Adjustments to the Fair Value Adjustment account reflect changes in market conditions, ensuring that the balance sheet provides a true representation of the company's financial status.

**Journal Entries for Long-term Investments in Available-for-Sale Securities**

Prepare journal entries to record these transactions, including the December 31 adjusting entry to record the fair value adjustment for long-term investments in available-for-sale securities.

| No | Date | General Journal | Debit | Credit |
|----|----------|--------------------------------------|---------|---------|
| 1 | Jan. 29 | Cash | 78,430 | |
| | | Loss on sale of debt investments | 1,225 | |
| | | Debt investments - AFS | | 79,655 |
| 2 | Jul. 06 | Debt investments - AFS | 120,800 | |
| | | Cash | | 120,800 |
| 3 | Nov. 13 | Debt investments - AFS | 267,100 | |
| | | Cash | | 267,100 |
| 4 | Dec. 9 | Cash | 70,000 | |
| | | Loss on sale of debt investments | 5,200 | |
| | | Debt investments - AFS | | 75,200 |
| 5 | Dec. 31 | Fair value adjustment - AFS | 12,375 | |
| | | Unrealized loss - Equity | | 12,375 |

### Explanation:

- **AFS** stands for Available-For-Sale securities, a category used for debt or equity securities not classified as held-to-maturity or trading securities.
- Entries track cash transactions related to sales or purchases of investments and adjustments to fair value at year-end.
- Unrealized gains or losses are recognized in equity on December 31st to reflect changes in market value.

This structured approach ensures accurate financial statement representations for investment activities.

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