
1.
Prepare journal entries to record the given transaction.
1.

Explanation of Solution
Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
Rules of Debit and Credit:
Following rules are followed for debiting and crediting different accounts while they occur in business transactions:
- Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and equities.
- Credit, all increase in liabilities, revenues, and equities, all decrease in assets, and expenses.
Prepare the journal entries to record the given transactions as follows:
Journal | ||||
Date | Account Title and Explanation | Post | Debit | Credit |
Ref. | ($) | ($) | ||
March 10, 2015 | Long-Term Investments-AFS (Company A) (1) | 31,400 | ||
Cash | 31,400 | |||
(To record the Purchase of 1,200 shares for $25.50 per share along with a commission of $800) | ||||
April 7, 2015 | Long-Term Investments—AFS (Company F) (2) | 57,283 | ||
Cash | 57,283 | |||
(To record the Purchase of 2,500 shares for $22.50 per share along with a commission of $1,033) | ||||
September 1, 2015 | Long-Term Investments—AFS (Company P) (3) | 29,090 | ||
Cash | 29,090 | |||
(To record the Purchase of 600 shares for $47 per share along with a commission of $890) | ||||
December 31, 2015 | Unrealized Loss—Equity | 2,873 | ||
Fair Value Adjustment—AFS (Company LT) (7) | 2,873 | |||
(To record the Annual adjustment to fair value of securities) | ||||
April 26, 2016 | Cash (8) | 50,043 | ||
Loss on Sale of Investments | 7,240 | |||
Long-Term Investments—AFS (Company F) | 57,283 | |||
(To record the sale of 2,500 shares at $20.50 per share) | ||||
June 2, 2016 | Long-Term Investments—AFS (Company D) (9) | 35,700 | ||
Cash | 35,700 | |||
(To record the Purchase of 1800 shares for $19.25 per share along with a commission of $1050) | ||||
June 14, 2016 | Long-Term Investments—AFS (Company S) (10) | 25,480 | ||
Cash | 25,480 | |||
(To record the Purchase of 1,200 shares for $21 per share along with a commission of $280) | ||||
November 27, 2016 | Cash (11) | 29,755 | ||
Gain on Sale of Investments | 665 | |||
Long-Term Investments—AFS (Company P) | 29,090 | |||
(To record the sale of 600 shares for $51 per share) | ||||
December 31, 2016 | Fair Value Adjustment-AFS (Company LT) | 5,093 | ||
Unrealized Loss-Equity (15) | 2,873 | |||
Unrealized Gain-Equity (15) | 2,220 | |||
(To record the Annual adjustment to fair value of securities) | ||||
January 28, 2017 | Long-Term Investments—AFS (Company C&C) (16) | 41,480 | ||
Cash | 41,480 | |||
(To record the Purchase of 1,000 shares for $40 per share along with a commission of $1480) | ||||
August 22, 2017 | Cash (17) | 23,950 | ||
Loss on Sale of Investments | 7,450 | |||
Long-Term Investments—AFS (Company A) | 31,400 | |||
(To record the sale of 1,200 shares at $21.5 per share) | ||||
September 3, 2017 | Long-Term Investments—AFS (Company M) (18) | 84,780 | ||
Cash | 84,780 | |||
(To record the Purchase of 3,000 shares for $28 per share along with a commission of $780) | ||||
October 9, 2017 | Cash (19) | 28,201 | ||
Gain on Sale of Investments | 2,721 | |||
Long-Term Investments—AFS (Company S) | 25,480 | |||
(To record the sale of 1,200 shares at $24 per share) | ||||
October 31, 2017 | Cash (20) | 26,102 | ||
Loss on Sale of Investments | 9,598 | |||
Long-Term Investments—AFS (Company E.K) | 35,700 | |||
(To record the sale of 1,800 shares at $15 per share) | ||||
December 31, 2017 | Unrealized Gain—Equity | 2,220 | ||
Unrealized Loss—Equity | 6,260 | |||
Fair Value Adjustment—AFS (Company LT) (23) | 8,480 | |||
(To record the Annual adjustment to fair value of securities) |
Table (1)
Working note:
Calculate the purchased value of long-term investment (Company A)
Calculate the purchased value of long-term investment (Company F)
Calculate the purchased value of long-term investment (Company P)
Calculate the fair value adjustment for 2015.
Name of the company | Cost of long-term investment | Fair value of long-term investment | Unrealized gain or (loss) |
Company A | $31,400 (1) | $33,000 (4) | |
Company F | $57,283 (2) | $52,500 (5) | |
Company P | $29,090 (3) | $29,400 (6) | |
Total | $117,773 | $114,900 | $2,873 (7) |
Table (2)
Calculate the fair value of long-term investment of Company A:
Calculate the fair value of long-term investment of Company F:
Calculate the fair value of long-term investment of Company P:
Calculate the value of unrealized gain or loss
Calculate the value of cash received from the sale of stock investment (Company F stocks)
Calculate the purchased value of long-term investment (Company D)
Calculate the purchased value of long-term investment (Company S)
Calculate the purchased value of long-term investment (Company P)
Calculate the fair value adjustment for 2016.
Name of the company | Cost of long-term investment | Fair value of long-term investment | Unrealized gain or (loss) |
Company A | $31,400 (11) | $34,800 (12) | |
Company D | $35,700 (10) | $32,400 (13) | |
Company S | $25,480 (3) | $27,600 (14) | |
Total | $92,580 | $94,800 | $2,220 |
Table (3)
Calculate the fair value of long-term investment of Company A:
Calculate the fair value of long-term investment of Company D:
Calculate the fair value of long-term investment of Company S:
Calculate the value of unrealized gain or loss
Calculate the purchased value of long-term investment (Company C&C)
Calculate the value of cash received from the sale of stock investment (Company A stocks)
Calculate the purchased value of long-term investment (Company M)
Calculate the value of cash received from the sale of stock investment (Company SL stocks)
Calculate the value of cash received from the sale of stock investment (Company E.K stocks)
Calculate the fair value adjustment for 2017.
Name of the company | Cost of long-term investment | Fair value of long-term investment | Unrealized gain or (loss) |
Company C&C | $41,480 (16) | $48,000 (21) | |
Company M | $84,780 (18) | $72,000 (22) | |
Total | $126,260 | $120,000 | $6,260 |
Table (4)
Calculate the fair value of long-term investment of Company C&C:
Calculate the fair value of long-term investment of Company M:
Calculate the value of unrealized gain or loss:
2.
Prepare a table that summarizes the following
- a. Total cost,
- b. Total fair value adjustments,
- c. Total fair value of the portfolio of long-term available-for-sale securities at year-end.
2.

Explanation of Solution
Prepare a table that summarizes the total cost, total fair value adjustments, and the total fair value as follows:
Particulars | December 31, 2015 | December 31, 2016 | December 31, 2017 |
a. Long-Term AFS Securities (cost) | $117,773 | $92,580 | $126,260 |
b. Fair Value Adjustment | (2,873) | 2,220 | (6,260) |
c. Long-Term AFS Securities (fair value) | $114,900 | $94,800 | $120,000 |
Table (5)
3.
Prepare a table that summarizes the following
- a. The realized gains and losses,
- b. The unrealized gains and losses for the portfolio of long-term available-for-sale securities at year-end.
3.

Explanation of Solution
- a. Prepare a table that summarizes the realized gains and losses as follows:
Particulars | 2015 | 2016 | 2017 |
Realized gains (losses) | |||
Sale of F shares | $(7,240) | ||
Sale of P shares | 665 | ||
Sale of D shares | $ (9,598) | ||
Sale of A shares | (7,450) | ||
Sale of S shares | 2,721 | ||
Total realized gain (loss) | $0 | $(6,575) | $(14,327) |
Table (6)
- b. Prepare a table that summarizes the Unrealized gains and losses as follows
Particulars | 2015 | 2016 | 2017 |
Unrealized gains (losses) at year-end | $(2,873) | $2,220 | $(6,260) |
Table (7)
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