Chapter 15, Problem 1GLP

To determine

Concept Introduction:

Available-for-sale investments:

Available-for-sale investments are the investments which neither fall in the category of trading investments nor fall in the category of held-to-maturity investments.

They are recorded at fair market value. The effects of fluctuations in the prices i.e. increase or decrease in prices at the year-end are adjusted and unrealized gain or loss due to these fluctuations are transferred to other comprehensive income.

Other comprehensive income is not included in net income. Other comprehensive income are shown after net income in the income statement.

Requirement 1

To prepare:

Journal entries to record the preceding transactions and events.

To determine

Requirement 2

To prepare:

A table to compare year-end cost and fair values of Rose’s short-term investments in available for sale securities.

To determine

Requirement 3

To prepare:

An adjusting entry to record the year-end fair value adjustment for the portfolio of short-term investments.

To determine

Requirement 4

To explain:

Balance sheet presentation of the fair value adjustment for Rose’s short-term investments.

To determine

Requirement 5

To determine:

How short-term investments affects Rose’ (a) income statement for the year 2017 and (b) the equity section of its balance sheet at year-end 2017.