E16-10 Prepare adjusting entry to record fair value, and indicate statement presentation
At December 31, 2017, the trading securities for Storrer, Inc. are as follows.
Security Cost Fair Value
A $17,500 $16,000
B 12,500 14,000
C 23,000 21,000
$53,000 $51,000
Instructions
(a) Prepare the adjusting entry at December 31, 2017, to report the securities at fair value.
(b) Show the balance sheet and income statement presentation at December 31, 2017,
after adjustment to fair value.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
(a) Dec. 31 Value Value
(b) Current assets
Short-term investments, at fair value
Other expenses and losses
Unrealized loss on trading securities
After you have completed the requirements of E16-10, consider the additional question.
Answers are on the other tab in this file.
1. Suppose the market value of stocks changed to $57,000. Revise the adjusting entry at
December 31, 2017, to report the securities at fair valance and show the balance sheet
and income statement presentation after adjustment to fair value.
Account
Account
Income Statement
Balance Sheet
Ex 16-10 Solution
(a) Dec. 31 2,000 2,000
(b) Current assets
Fair Value Adjustment -Trading
Balance Sheet
E16-10 Solution to additional question
1. Suppose the market value of stocks changed to $57,000. Revise the adjusting entry at
December 31, 2017, to report the securities at fair valance and show the balance sheet
and income statement presentation after adjustment to fair value.
(a) Dec. 31 4,000 4,000
Fair Value Adjustment -Trading
Unrealized Gain – Income
P16-3A Journalize transactions and adjusting entry for stock investments
On December 31, 2017, Turnball Associates owned the following securities, held as a long-term
investment. The securities are not held for influence or control of the investee.
Shares Cost
Gehring Co. 2,000 $60,000
Wooderson Co. 5,000 45,000
Kitselton Co. 1,500 `30,000
On December 31, 2017, the total fair value of the securities was equal to its cost. In 2018,
the following transactions occurred.
July 1 Received $1 per share semiannual cash dividend on Wooderson Co. common stock.
Aug.1 Received $0.50 per share cash dividend on Gehring Co. common stock.
Sept. 1 Sold 1,500 shares of Wooderson Co. common stock for cash at $8 per share.
Oct. 1 Sold 800 shares of Gehring Co. common stock for cash at $33 per share.
Nov. 1 Received $1 per share cash dividend on Kitselton co. common stock.
Dec. 15 Received $0.50 per share cash dividend on Gehring co. common stock.
Dec.31 Received $1 per share semiannual cash dividend on Wooderson Co. common stock.
At December 31, the fair values per share of the common stocks were: Gehring Co. $32,
Wooderson Co. $8, and Kitselton Co. $18.
Instructions
(a) Journalize the 2018 transactions and post to the account Stock Investments.
(Use the T-account form.)
(b) Prepare the adjusting entry at December 31, 2018, to show the securities at
fair value. The stock should be classified as available-for-sale securities.
(c ) Show the balance sheet presentation of the investments at December 31, 2018.
At this date, Turnball Associates has common stock $1,500,000 and retained
earnings $1,000,000.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
(a)
July 1 Value Value
Aug. 1 Value Value
Sept. 1 Value
Value Value
Oct 1 Value Value
Value
Account
Account
Account
Account
Account
Account
Common Stock
Account
Account
Account
Account
2018
Nov 1 Value Value
Dec. 15 Value Value
Dec 31 Value Value
2018 2018
Jan. 1 Balance Value Sept. 1 Value
Oct. 1 Value
2018
Dec. 31 Balance Value
(b) Dec. 31 Value Value
Cost Fair Value
? ?
? ?
30,000 ?
? ?
(c ) Investments
Investments in stock of less than
20% owned companies, at fair value Value
Stockholders’ equity
Common stock Value
Retained earnings Value
Total paid-in capital and retained earnings
Value
Less: Unrealized loss on available-for-sale securities Value
Total stockholders’ equity Value
After you have completed the requirements of P16-3A, consider the additional question.
Answers are on the other tab in this file.
1. Suppose that shares of Wooderson Co. were sold for $10/share and shares of Gehring Co. were sold
for $35/share. Also assume the fair values at December 31 were: Gehring Co. $28, Wooderson Co.
$10, and Kitselton Co. $19. Show revised journal entries to record these sales and to adjust securities
Gehring Co. common
Wooderson Co. common
Kitselton Co. common
Stock Investments
Account
Account
Account
Account
Security
Account
Account
Account
Account
to fair value. Also show revised balance sheet presentation.
Stock investments
Cash
Dividend Revenue
P16-3A Solution
(a)
July 1 5,000 5,000
Aug. 1 1,000 1,000
2,000 shares x $0.50/share = $1,000
Sept. 1 12,000
1,500 13,500
Oct 1 26,400 24,000
2,400
Nov 1 1,500 1,500
Dec. 15 600 600
1,200 shares(2,000 – 800) x $0.50 = $600
Loss on Sale of Stock Investments
Cash
Stock Investments
Gain on Sale of Stock Investments
Cash
Dividend Revenue
Cash
Dividend Revenue
Cash
2018
Cash
Dividend Revenue
Cash
Dividend Revenue
Oct. 1 24,000
2018
Dec. 31 Balance 97,500
(b) Dec. 31 4,100 4,100
(c ) Investments
Investments in stock of less than
20% owned companies, at fair value $93,400
Stockholders’ equity
Common stock $1,500,000
Fair Value Adjustment – Available-for-Sale
Unrealized Gain or Loss – Equity
Gehring Co. common
Wooderson Co. common
P16-3A Solution to additional question
1. Suppose that shares of Wooderson Co. were sold for $10/share and shares of Gehring Co. were sold
for $35/share. Also assume the fair values at December 31 were: Gehring Co. $28, Wooderson Co.
$10, and Kitselton Co. $19. Show revised journal entries to record these sales and to adjust securities
to fair value. Also show revised balance sheet presentation.
(a)
Sept. 1 15,000
Oct 1 28,000 24,000
4,000
2018 2018
Jan. 1 Balance 135,000 Sept. 1 13,500
(b) Dec. 31 400 400
(c ) Investments
Investments in stock of less than
20% owned companies, at fair value $97,100
Stockholders’ equity
Common stock $1,500,000
2018
Cash
Stock Investments
Cash
Stock Investments
Gain on Sale of Stock Investments
Unrealized Gain or Loss – Equity
Fair Value Adjustment – Available-for Sale
Gain on Sale of Stock Investments