Required informationProblem 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. ### Journal Entries for Long-term Investments in Available-for-Sale SecuritiesThe following table details the journal entries necessary for recording transactions of long-term investments, specifically available-for-sale (AFS) securities, including adjustments for fair value on December 31:#### Table: Journal Entries| 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 | 78,430 | || | | Loss on sale of debt investments | 1,225 | || | | Debt investments - AFS | | 79,655 || 5 | Dec. 31 | Fair value adjustment - AFS | | || | | Unrealized loss - Equity | | |### Explanation of Transactions1. **January 29**: Cash is received from the sale of AFS securities, resulting in a loss, hence a debit to the loss account and a credit to the investment account.2. **July 6**: The purchase of additional AFS securities, resulting in a debit to debt investments.3. **November 13**: Another purchase of AFS securities, reflected by a debit.4. **December 9**: Records the sale of AFS securities again, similar to January 29.5. **December 31**: Adjustment for fair value of AFS securities is recorded, adjusting Unrealized Loss in equity.This series of entries effectively captures the transactions and the necessary adjustments for proper financial reporting of available-for-sale securities.

The loss or gain on investment is realized on the basis of the fair market value of investments.

Answered: Required information Problem 15-3A Debt…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Required information

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

Skip 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 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.

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

The following table details the journal entries necessary for recording transactions of long-term investments, specifically available-for-sale (AFS) securities, including adjustments for fair value on December 31:

#### Table: Journal Entries

| 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 | 78,430 | |
| | | Loss on sale of debt investments | 1,225 | |
| | | Debt investments - AFS | | 79,655 |
| 5 | Dec. 31 | Fair value adjustment - AFS | | |
| | | Unrealized loss - Equity | | |

### Explanation of Transactions

1. **January 29**: Cash is received from the sale of AFS securities, resulting in a loss, hence a debit to the loss account and a credit to the investment account.
2. **July 6**: The purchase of additional AFS securities, resulting in a debit to debt investments.
3. **November 13**: Another purchase of AFS securities, reflected by a debit.
4. **December 9**: Records the sale of AFS securities again, similar to January 29.
5. **December 31**: Adjustment for fair value of AFS securities is recorded, adjusting Unrealized Loss in equity.

This series of entries effectively captures the transactions and the necessary adjustments for proper financial reporting of available-for-sale securities.

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