
Concept explainers
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 of year 2017

Explanation of Solution
To record sale of 3,500 share of B common stock at $79,188 and brokerage fee is $1500.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
January 29 | Cash | 77,688 | ||
Loss on sale of long term
investment | 2,002 | |||
Long term investment | 79,690 | |||
(Being long term investment sold at a loss of $599 and receive cash ) |
Table (1)
- 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 long term investment, the long term investment account decreases and the asset of the company also decreases with $79,690 amount.
- At the time of sale S Company suffer a loss on sale of investment and this loss is debited to the loss on sale of long term investment account.
To record purchase of 10,000 shares of W common stock at $197,500 plus $240 as brokerage fee
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
April 17 | Long term investment
Trading securities | 199,900 | ||
Cash | 199,900 | |||
(Being long term investment purchase against cash) |
Table (2)
- The long term investment of S Company is increase. The long term investment is the asset of the company and the current asset of S Company also increases.
- The cash account is decrease by $199,900, and the credit of cash means that the current asset of the company also decreases.
To record purchase of 4,500 shares of X common stock at $126,562 plus $1,750 as brokerage fee
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
July 6 | Long term investment
Trading securities | 128,312 | ||
Cash | 128,312 | |||
(Being long term investment purchase against cash) |
Table (3)
- The long term investment of S Company is increase. The long term investment is the asset of the company and the current asset of S Company also increases.
- The cash account is decrease by $128,312, and the credit of cash means that the current asset of the company also decreases.
To record purchase of 50,000 shares of Y common stock at $375,000 plus $1,200 as brokerage fee
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
August 22 | Long term investment
Trading securities | 376,200 | ||
Cash | 376,200 | |||
(Being long term investment purchase against cash) |
Table (4)
- The long term investment of S Company is increase. The long term investment is the asset of the company and the current asset of S Company also increases.
- The cash account is decrease by $376,200, and the credit of cash means that the current asset of the company also decreases.
To record purchase of 8,500 shares of Z common stock at $267,900 plus $2,450 as brokerage fee
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
November 13 | Long term investment
Trading securities | 270,350 | ||
Cash | 270,350 | |||
(Being long term investment purchase against cash) |
Table (5)
- The long term investment of S Company is increase. The long term investment is the asset of the company and the current asset of S Company also increases.
- The cash account is decrease by $270,350, and the credit of cash means that the current asset of the company also decreases.
To record sale of 40,000 share of A Common stock at $515,000 and brokerage fee is $4,100.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
December 9 | Cash | 510,900 | ||
Loss on sale of long term
investment | 24,400 | |||
Long term investment | 535,300 | |||
(Being long term investment sold at a loss of $24,400 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 long term investment, the long term investment account decreases and the asset of the company also decreases with $24,400 amount.
- At the time of sale S Company suffer a loss on sale of investment and this loss is debited to the loss on sale of long term investment account.
To record unrealized loss,
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
December 31 | Unrealized loss- Income | 27,988 | ||
Fair value adjustment
Short term investment | 27,988 | |||
(Being unrealized loss suffered of $27,988 at the time of closing) |
Table (7)
- There is an unrealized loss while calculating the year end adjustment. Unrealized loss account debited it reduces the net income.
- The fair value adjustment account is an adjustment account to account for the unrealized loss suffers by S Company.
Working notes:
Calculation of cost of share of B common stock sold,
Calculation of sale price of B common stock share that sold, given in question,
Calculation of loss in sale of shares,
Calculation of the value of purchase price of shares, W common stock,
Calculation of the value of purchase price of shares, X Company,
Calculation of the value of purchase price of shares, Y Company,
Calculation of the value of purchase price of shares, Z Company,
Calculation of sale price of A Company share that sold, given in question,
Calculation of loss in sale of shares,
Prepare a statement that shows security wise adjustment.
Company | Numberof shares | Fair valueonDecember 31,2016 ($)(A) | Cost of purchase of new security($)(A) | Fair valueonDecember 31,2017 ($)(B) | Unrealized gain/loss($) |
B | 3,500 | 77,000 | 81,375 | 4,375 | |
C | 17,500 | 640,938 | 610,312 | (30,626) | |
X | 4,500 | 128,312 | 118,125 | (10,187) | |
Z | 8,500 | 270,350 | 278,800 | 8,450 | |
717,938 | 398,662 | 1,088,612 | (27,988) |
Table (8)
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