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Chapter 13: Q6E (page 658)

(Entries for Equity Securities) The following information is available for Barkley Company at December 31,

2017, regarding its investments.

Securities Cost Fair Value

3,000 shares of Myers Corporation common stock \(40,000 \)48,000

1,000 shares of Cole Incorporated preferred stock 25,000 22,000

\(65,000 \)70,000

Instructions

(a) Prepare the adjusting entry (if any) for 2017, assuming no balance in the Fair Value Adjustment account at January 1,

2017. Neither of Barkley鈥檚 investments result in significant influence.

(b) Discuss how the amounts reported in the financial statements are affected by the entries in (a).

Short Answer

Expert verified

Unrealized holding income is $5,000. Fair value adjustment debited by $5,000 and unrealized holding gain / loss income credited by $5,000.

Step by step solution

01

Adjusting entry of the fair value adjustment

Date

Description

Debit

Credit

December 31, 2017

Fair value adjustment

$5,000

Unrealized holding gain/loss- Income

$5,000

Being Entry of fair value recognition

The balance of both common stock and preferred stock is adjusted to find the net fair value adjustment.

02

Effect of the entries in the financial statements

Yes, these entries affect the financial statements because these are related to the income statement that comes under the other comprehensive income.

In this, securities fair value adjustment is added to the investment account to calculate net fair value.

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Most popular questions from this chapter

Under what conditions should a provision be recorded?

(Debt Investments) Presented below is information from a bond investment amortization schedule with

related fair values provided. These bonds are classified as available-for-sale.

12/31/17 12/31/18 12/31/19

Amortized cost \(491,150 \)519,442 \(550,000

Fair value 497,000 509,000 550,000

Instructions

(a) Indicate whether the bonds were purchased at a discount or a premium.

(b) Prepare the adjusting entry to record the bonds at fair value on December 31, 2017. The Fair Value Adjustment account

has a debit balance of \)1,000 before adjustment.

(c) Prepare the adjusting entry to record the bonds at fair value on December 31, 2018.

(Multiple-Step and Single-Step Statements) Two accountants for the firm of Elwes and Wright are arguing about the merits of presenting an income statement in a multiple-step versus a single-step format. The discussion involves the following 2017 information related to P. Bride Company (\(000 omitted).

Administrative expense

Officers鈥� salaries \)4,900

Depreciation of office furniture and equipment \(3,960

Cost of goods sold \)60,570

Rent revenue \(17,230

Selling expense

Delivery expense \)2,690

Sales commissions \(7,980

Depreciation of sales equipment \)6,480

Sales revenue \(96,500

Income tax \)9,070

Interest expense $1,860

Instructions

  1. Prepare an income statement for the year 2017 using the multiple-step form. Common shares outstanding for 2017 total 40,550 (000 omitted).
  2. Prepare an income statement for the year 2017 using the single-step form.
  3. Which one do you prefer? Discuss.

Define (a) a contingency and (b) a contingent liability.

Question: Amsterdam Company uses a periodic inventory system. For April, when the company sold 600 units, the following information is available.

Units Unit Cost Total Cost

April 1 inventory 250 \(10 \) 2,500

April 15 purchase 400 12 4,800

April 23 purchase 350 13 4,550

1,000 $11,850

Compute the April 30 inventory and the April cost of goods sold using the average-cost method.
See all solutions

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