
Journal is the primary record of the business transaction in chronological (date wise) order. Journal Entry contains two effects one is debit and other is credit, under double entry book keeping system.
Adjusting entries are made at the end of the year to adjust the financial position of the enterprise according to accrual basis of accounting.
To prepare: Journal entries to record the transactions.

Explanation of Solution
For the year 2017,
To record purchase of 2,400 shares of Aat $59.15 per share plus $1,545 as commission
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
March10,2017 | Short term investment Trading securities | 142,505 | ||
Cash | 142,505 | |||
(Being short term investment purchase against cash) |
Table(1)
- The short term investment of H Company is increase. The short term investment is the asset of the company and the current asset of H Company also increases.
- The cash account is decrease by $142,505, and the credit of cash means that the current asset of the company also decreases.
To record purchase of 5,000 shares of Mat $36.25 per share plus $2,855 as commission
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
May 7,2017 | Short term investment Trading securities | 184,105 | ||
Cash | 184,105 | |||
(Being short term investment purchase against cash) |
Table(2)
- The short term investment of H Company is increase. The short term investment is the asset of the company and the current asset of H Company also increases.
- The cash account is decrease by $184,105, and the credit of cash means that the current asset of the company also decreases.
To record purchase of 1,200 shares of Uat $57.25 per share plus $1,250 as commission
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
Sep 1,2017 | Short term investment Trading securities | 69,950 | ||
Cash | 69,950 | |||
(Being short term investment purchase against cash) |
Table(3)
- The short term investment of H Company is increase. The short term investment is the asset of the company and the current asset of H Company also increases.
- The cash account is decrease by $69,950, and the credit of cash means that the current asset of the company also decreases.
To record the unrealized gain earn on December 31, 2017.
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
December 31, 2017 | Fair value adjustment Short term investment | 16,560 | ||
Unrealized gain-Income | 16,560 | |||
(Being unrealized gain earned of $16,560 at the time of closing) |
Table(4)
- The fair value of short term investment is $380,000 and the cost of share is $ 396,560 so the H Company earns an unrealized gain of $16,560, and unrealized gain increases the balance of income.
- The fair value adjustment account is an adjustment account to account for the unrealized gain earned by H Company.
For the year 2018,
To record sale of 5,000 share of M at $34.50 and commission is $2,050.
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
April 26, 2018 | Cash | 170,450 | ||
Loss on sale of short term investment | 13,655 | |||
Short term investment | 184,105 | |||
(Being short term investment sold at a loss of $13,655 and receive cash ) |
Table(5)
- Cash receive at the time of sale of investment it increases the cash balance and the asset of the company also increases.
- By the sale of short term investment, the short term investment account decreases and the asset of the company also decreases with $184,105 amount.
- At the time of sale H Company receives the loss on sale of investment and this loss is debited to the loss on sale of short term investment account.
To record sale of 1,200 share of U Company at $60.50 and commission is $1,788.
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
April 27, 2018 | Cash | 70,812 | ||
Gain on sale of short term investment | 862 | |||
Short term investment | 69,950 | |||
(Being short term investment sold at a gain of $1,990 and receive cash ) |
Table(6)
- Cash receive at the time of sale of investment it increases the cash balance and the asset of the company also increases.
- By the sale of short term investment, the short term investment account decreases and the asset of the company also decreases with $69,950 amount.
- At the time of sale H Company receives the gain on sale of investment and this gain is credited to the gain on sale of short term investment account.
To record purchase of 3,600 shares of S at $172 per share plus $3,250 as commission
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
June 2,2018 | Short term investment Trading securities | 622,450 | ||
Cash | 622,450 | |||
(Being short term investment purchase against cash) |
Table(7)
- The short term investment of H Company is increase. The short term investment is the asset of the company and the current asset of H Company also increases.
- The cash account is decrease by $622,450, and the credit of cash means that the current asset of the company also decreases.
To record purchase of 900 shares of W Martat $50.25 per share plus $1,082 as commission
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
June 14, 2018 | Short term investment Trading securities | 46,307 | ||
Cash | 46,307 | |||
(Being short term investment purchase against cash) |
Table(8)
- The short term investment of H Company is increase. The short term investment is the asset of the company and the current asset of H Company also increases.
- The cash account is decrease by $46,307, and the credit of cash means that the current asset of the company also decreases.
To record the unrealized loss occurs on December 31, 2018.
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
December 31, 2018 | Unrealized loss- Income | 16,738 | ||
Fair value adjustment Short term investment | 16,738 | |||
(Being unrealized loss suffered of $16,738 at the time of closing) |
Table(9)
- The fair value of short term investment is $828,000 and the cost of share is $ 811,262 so the H Company suffers an unrealized loss of $16,738, and unrealized loss reduces the balance of equity account.
- The fair value adjustment account is an adjustment account to account for the unrealized loss suffers by H Company.
For the year 2019,
To record purchase of 2,000 shares of P Companyat $43 per share plus $2,890 as commission
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
Jan 28, 2019 | Short term investment Trading securities | 88,890 | ||
Cash | 88,890 | |||
(Being short term investment purchase against cash) |
Table(10)
- The short term investment of H Company is increase. The short term investment is the asset of the company and the current asset of H Company also increases.
- The cash account is decrease by $88,890, and the credit of cash means that the current asset of the company also decreases.
To record sale of 3,600 share of S at $172 and commission is $3,250.
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
Jan 31, 2019 | Cash | 602,760 | ||
Loss on sale of short term investment | 19,690 | |||
Short term investment | 622,450 | |||
(Being short term investment sold at a loss of $13,655 and receive cash ) |
Table(11)
- Cash receive at the time of sale of investment it increases the cash balance and the asset of the company also increases.
- By the sale of short term investment, the short term investment account decreases and the asset of the company also decreases with $622,450 amount.
- At the time of sale H Company receives the loss on sale of investment and this loss is debited to the loss on sale of short term investment account.
To record sale of 2,400 share of A at $56.75 and commission is $2,480.
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
August 22, 2019 | Cash | 133,720 | ||
Loss on sale of short term Investment | 8785 | |||
Short term investment | 142,505 | |||
(Being short term investment sold at a loss of $13,655 and receive cash ) |
Table(12)
- Cash receive at the time of sale of investment it increases the cash balance and the asset of the company also increases.
- By the sale of short term investment, the short term investment account decreases and the asset of the company also decreases with $142,505 amount.
- At the time of sale H Company receives the loss on sale of investment and this loss is debited to the loss on sale of short term investment account.
To record purchase of 1,500 shares of V Companyat $40.50 per share plus $1,680 as commission
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
Sep 3,2019 | Short term investment Trading securities | 62,430 | ||
Cash | 62,430 | |||
(Being short term investment purchase against cash) |
Table(13)
- The short term investment of H Company is increase. The short term investment is the asset of the company and the current asset of H Company also increases.
- The cash account is decrease by $62,430, and the credit of cash means that the current asset of the company also decreases.
To record sale of 900 share of W Mart at $53.75 and commission is $1,220.
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
April 27, 2019 | Cash | 47,155 | ||
Gain on sale of short term Investment | 848 | |||
Short term investment | 46,307 | |||
(Being short term investment sold at a gain of $1,990 and receive cash ) |
Table(14)
- Cash receive at the time of sale of investment it increases the cash balance and the asset of the company also increases.
- By the sale of short term investment, the short term investment account decreases and the asset of the company also decreases with $69,950 amount.
- At the time of sale H Company receives the gain on sale of investment and this gain is credited to the gain on sale of short term investment account.
To record the unrealized gain earn on December 31, 2019.
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
Dec 31, 2019 | Fair value adjustment Short term investment | 11,320 | ||
Unrealized gain-Income | 11,320 | |||
(Being unrealized gain earned of $11,320 at the time of closing) |
Table(15)
- The fair value of short term investment is $140,000 and the cost of share is $ 151,320 so the H Company earns an unrealized gain of $11,320, and unrealized gain increases the balance of income.
- The fair value adjustment account is an adjustment account to account for the unrealized gain earned by H Company.
Working notes:
Calculation of the value of purchase price of shares, purchase from A,
Calculation of the value of purchase price of shares, purchase from M,
Calculation of the value of purchase price of shares, purchase from U,
Calculation of fair value adjustment as on December 31, 2017,
Calculation of sale price of M shares,
Calculation of loss in the sale of investment of M shares,
Calculation of sale price of U shares,
Calculation of Gain in the sale of investment of F Company,
Calculation of the value of purchase price of shares, purchase from S,
Calculation of the value of purchase price of shares, purchase from W Mart,
Calculation of fair value adjustment as on December 31, 2018,
Calculation of the value of purchase price of shares, purchase from P Company,
Calculation of sale price of S shares,
Calculation of loss in the sale of investment of S shares,
Calculation of sale price of A shares,
Calculation of loss in the sale of investment of S shares,
Calculation of the value of purchase price of shares, purchase from V Company,
Calculation of sale price of W Mart shares,
Calculation of Gain in the sale of investment of W mart Company,
Calculation of fair value adjustment as on December 31, 2019,
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Chapter C Solutions
FINANCIAL & MANAGERIAL ACCOUNTING
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