Loose Leaf for Fundamental Accounting Principles
Loose Leaf for Fundamental Accounting Principles
23rd Edition
ISBN: 9781259687709
Author: John J Wild, Ken Shaw Accounting Professor, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
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Chapter 15, Problem 3APSA
To determine

1.

Introduction:

Available for Sale securities are those securities which can neither be classified as Trading securities nor as Held to Maturity Security.

Trading securities are securities which are intended to be sold in the short term.

Held to Maturity Securities are the investments which are intended to be held until maturity date.

Available for sale securities may be classified as long-term assets if they are intended to be held for a period of more than a year. Available for Sale securities are recorded at their fair values and any unrealized gains or losses are reported in other comprehensive income until they have been realized. (i.e. by selling the securities)

To Prepare:

Journal Entries to record transactions involving long term available for sale securities investments and events and fair value adjustments to the portfolio of long term available for sale securities.

Expert Solution
Check Mark

Answer to Problem 3APSA

Solution:

Serial No. Date Particulars Debit ($) Credit ($)
1 20/01/2017 Investment- Long Term Available for Sale Securities A/c 20740  
Cash A/c   20740
(Being purchased 1000 shares of Johnsons & Johnsons @ $20.50 per share plus $240 commission)    
         
2 09/02/2017 Investment- Long Term Available for Sale Securities A/c 55665  
Cash A/c   55665
(Being purchased 1200 shares of Sony @ $46.20 per share plus $225 commission)    
     
3 12/06/2017 Investment- Long Term Available for Sale Securities A/c 40695  
Cash A/c   40695
(Being purchased 1500 shares of Mattel @ $27 per share plus $195 commission)    
     
4 31/12/2017 Unrealised Gain/Loss-Other Comprehensive Income A/c 3650  
Investment- Long Term Available for Sale Securities A/c   3650
(Being Unrealised Loss on revaluation of Investment- Long Term Available for Sale Securities A/c recognized)    
         
5 15/04/2018 Cash A/c 22975  
Unrealised Gain/Loss-Other Comprehensive Income A/c 760  
Investment- Long Term Available for Sale Securities A/c   21500
Realised Gain on Available for Sale Securities A/c   2235
(Being Sold 1000 shares of Johnsons and Johnsons at $23.50 less $525 commission and gains accounted for)    
     
6 05/07/2018 Cash A/c 35615  
Unrealised Gain/Loss-Other Comprehensive Income A/c 5655  
Realised Loss on Available for Sale Securities A/c 5080  
Investment- Long Term Available for Sale Securities A/c   46350
(Being Sold 1500 shares of Mattel at $23.90 less $235 commission and loss accounted for)    
     
7 22/07/2018 Investment- Long Term Available for Sale Securities A/c 13980  
Cash A/c   13980
(Being purchased 600 shares of Sara Lee @ $22.50 per share plus $480 commission)    
     
8 19/08/2018 Investment- Long Term Available for Sale Securities A/c 15498  
Cash A/c   15498
(Being purchased 900 shares of Eastman Kodak@ $17 per share plus $198 commission)    
     
9 31/12/2018 Unrealised Gain/Loss-Other Comprehensive Income A/c 3753  
Investment- Long Term Available for Sale Securities A/c   3753
(Being Unrealised Loss on revaluation of Investment- Long Term Available for Sale Securities A/c recognized)    
     
10 27/02/2019 Investment- Long Term Available for Sale Securities A/c 161325  
Cash A/c   161325
(Being purchased 2400 shares of Microsoft@ $67.00 per share plus $525 commission)    
     
11 21/06/2019 Cash A/c 56720  
Realised Gain on Available for Sale Securities A/c   1055
Investment- Long Term Available for Sale Securities A/c   42000
Unrealised Gain/Loss-Other Comprehensive Income A/c   13665
(Being Sold 1200 shares of Sony at $48.00 per share less $880 commission and gain accounted for)    
     
12 30/06/2019 Investment- Long Term Available for Sale Securities A/c 50835  
Cash A/c   50835
(Being purchased 1400 shares of Black & Decker@ $36.00 per share plus $435 commission)    
     
13 03/08/2019 Cash A/c 9315  
Realised Loss on Available for Sale Securities A/c 4665  
Investment- Long Term Available for Sale Securities A/c   12000
Unrealised Gain/Loss-Other Comprehensive Income A/c   1980
(Being Sold 600 shares of Sara Lee at $16.25 per share less $435 commission and loss accounted for)    
     
14 01/11/2019 Cash A/c 19850  
Unrealised Gain/Loss-Other Comprehensive Income A/c 1827  
Realised Gain on Available for Sale Securities A/c   4352
Investment- Long Term Available for Sale Securities A/c   17325
(Being Sold 900 shares of Eastman Kodak at $22.75 per share less $625 commission and gain accounted for)    
     
15 31/12/2019 Investment- Long Term Available for Sale Securities A/c 8040  
Unrealised Gain/Loss-Other Comprehensive Income A/c   8040
(Being Unrealised Gain on revaluation of Investment- Long Term Available for Sale Securities A/c recognized)    

Explanation of Solution

Explanation and Calculations:

The journal entries are explained as below:

Entry Date Explanation and Calculation
20/01/2017 Since Investment in long term Available for sale securities has been purchased it has been debited and since cash has been paid it has been credited. Fees and commission paid on purchase of securities are included in the value of the said securities.
The calculation of value is as shown:
(1000*20.50)+240= 20740
09/02/2017 Since Investment in long term Available for sale securities has been purchased it has been debited and since cash has been paid it has been credited. Fees and commission paid on purchase of securities are included in the value of the said securities.
The calculation of value is as shown:
(1200*46.20)+225 = 55665
12/06/2017 Since Investment in long term Available for sale securities has been purchased it has been debited and since cash has been paid it has been credited. Fees paid on purchase of securities are included in the value of the said securities.
The calculation of value is as shown:
(1500*27)+195= 40695
31/12/2017 As per GAAP, Available for Sale securities are revalued at their fair values at each year end dates. This revaluation is done either by debiting Unrealised Gain/Loss- Other Comprehensive Income (OCI) A/c in case of decrease in value of the securities and vice versa.
The calculations are as shown below:
a) Johnsons & Johnsons Stock:
Fair value per stock = $21.50
So, Total value of 1000 shares = 1000*21.50 = $21500.
Book Value = $20740.
So Unrealised Gain on Johnsons & Johnsons= $(2150020740) = $760
b) Sony Stock:
Fair Value per stock = $38
So, Total Value of 1200 shares of Sony = 1200*38 = $45600
Book Value = $55665
So, Unrealised Loss on Sony = $(4560055665) = $10065
C) Mattel Stock:
Fair Value per stock= $30.90
So total value of 1500 shares of Mattel= 1500*30.90 = $ 46350
Book Value = $40695
So, Unrealised Gain on Mattel= $(4635040695) = $5655
So Net Unrealized Gain/Loss = a+cb= $(760+565510065) = $3650
15/04/2018 Since Cash is received on sale, Cash a/c is debited. Amount= (1000*23.50)525 = $22975
Unrealized Gain on Johnsons & Johnsons = $760 is debited as per GAAP.
Last updated fair value of Investment- Long Term Available for Sale Securities A/c (Johnsons & Johnsons) = $21500 is credited on sale of investment.
Balance figure = $(22975+76021500) = $2235 is the realized gain and it is credited.
05/07/2018 Since Cash is received on sale, Cash a/c is debited. Amount= (1500*23.90)235 = $35615
Unrealized Gain on Mattel = $5655 is debited as per GAAP.
Last updated fair value of Investment- Long Term Available for Sale Securities A/c (Mattel) = $46350 is credited on sale of investment.
Balance figure = $(35615+565546350) = $5080 is the realized loss and it is debited
22/07/2018 Since Investment in long term Available for sale securities has been purchased it has been debited and since cash has been paid it has been credited. Fees and commission paid on purchase of securities are included in the value of the said securities.
The calculation of value is as shown:
(600*22.50)+480= $13980
19/08/2018 Since Investment in long term Available for sale securities has been purchased it has been debited and since cash has been paid it has been credited. Fees and commission paid on purchase of securities are included in the value of the said securities.
The calculation of value is as shown:
(900*17)+198= $15498
31/12/2018 As per GAAP, Available for Sale securities are revalued at their fair values at each year end dates. This revaluation is done either by debiting Unrealised Gain/Loss- Other Comprehensive Income (OCI) A/c in case of decrease in value of the securities and vice versa.
The calculations are as shown below:
a) Kodak Stock:
Fair value per stock = $19.25
So, Total value of 900 shares = 900*19.25 = $17325.
Book Value = $15498.
So Unrealised Gain on Kodak= $(1732515498) = $1827
b) Sony Stock:
Fair Value per stock = $35
So, Total Value of 1200 shares of Sony = 1200*35 = $42000
Book Value = $45600
So, Unrealised Loss on Sony = $(4200045600) = $3600
C) Sara Lee Stock:
Fair Value per stock= $20
So total value of 600 shares of Sara Lee = 600*20 = $ 12000
Book Value = $13980
So, Unrealised Loss on Sara Lee = $(1200013980) = $1980
So Net Unrealized Gain/Loss= a bc = $(182736001980) = $3753
27/02/2019 Since Investment in long term Available for sale securities has been purchased it has been debited and since cash has been paid it has been credited. Fees and commission paid on purchase of securities are included in the value of the said securities.
The calculation of value is as shown:
(2400*67)+525= $161325
21/06/2019 Since Cash is received on sale, Cash a/c is debited. Amount = (1200*48)880 = $56720
Unrealised Loss on Sony = $(10065+3600) = $13665 is credited as per GAAP.
Last updated fair value of Investment- Long Term Available for Sale Securities A/c (Sony) = $42000 is credited on sale of investment.
Balance figure = $(567204200013665) = $1055 is the realized gain and it is credited
30/06/2019 Since Investment in long term Available for sale securities has been purchased it has been debited and since cash has been paid it has been credited. Fees and commission paid on purchase of securities are included in the value of the said securities.
The calculation of value is as shown:
(1400*36)+435= $50835
03/08/2019 Since Cash is received on sale, Cash a/c is debited. Amount= (600*16.25)435 = $9315 Unrealized Loss on Sara Lee = $1980 is credited as per GAAP.
Last updated fair value of Investment- Long Term Available for Sale Securities A/c (Sara Lee) = $12000 is credited on sale of investment.
Balance figure = $(9315198012000) = $4665 is the realized loss and it is debited
01/11/2019 Since Cash is received on sale, Cash a/c is debited. Amount= (900*22.75)625 = $19850
Unrealized Gain on Eastman Kodak= $1827 is debited as per GAAP.
Last updated fair value of Investment- Long Term Available for Sale Securities A/c (Eastman Kodak) = $17325 is credited on sale of investment.
Balance figure = $(19850+182717325) = $4352 is the realized gain and it is credited
31/12/2019 As per GAAP, Available for Sale securities are revalued at their fair values at each year end dates. This revaluation is done either by debiting Unrealised Gain/Loss- Other Comprehensive Income (OCI) A/c in case of decrease in value of the securities and vice versa.
The calculations are as shown below:
a) Microsoft Stock:
Fair value per stock = $69.00
So, Total value of 2400 shares = 2400*69.00 = $165600
Book Value = $161325.
So Unrealised Gain on Microsoft = $(165600161325) = $4275
b) Black & Decker Stock:
Fair Value per stock = $39.00
So, Total Value of 1400 shares of Black & Decker = 1400*39 = $54600
Book Value = $50835
So, Unrealised Gain on Black & Decker = $(5460050835) = $3765
So, Net unrealized gain = a+b = 4275+3765 = $8040
   
To determine

2.

Introduction:

Total Cost means the cost incurred to acquire the securities and includes fees and commission paid on such acquisition.

Fair value adjustment means the adjustments to be made in the fair value of the Available for sale securities as at the end of the year as required by the GAAP.

Total Fair value of Portfolio =(Total Cost-Fair value adjustment)

To Prepare:

A table that summarises the (a) Total Cost, (b) Total fair value adjustment, and (c) Total fair value of the portfolio of long-term available-for-sale securities at each year-end. i.e. 2017, 2018, 2019.

Expert Solution
Check Mark

Answer to Problem 3APSA

Solution:

GRASS SECURITY
PARTICULARS 2017 2018 2019
(a) Total Cost      
Johnsons & Johnsons 20740 - -
Sony 55665 55665 -
Mattel 40695 - -
Sara Lee - 13980 -
Eastman Kodak - 15498 -
Microsoft - - 161325
Black & Decker - - 50835
Total (a) 117100 85143 212160
       
(b) Total Fair value Adjustment      
Johnsons & Johnsons 760 - -
Sony -10065 -13665 -
Mattel 5655 - -
Sara Lee - -1980 -
Eastman Kodak - 1827 -
Microsoft - - 4275
Black & Decker - - 3765
Total (b) -3650 -13818 8040
       
(C) Total fair value of the portfolio of long-term available-for-sale securities:      
Total Cost (a) 117100 85143 212160
Less: Fair Value Adjustment -3650 -13818 8040
Total(c) 113450 71325 220200

Explanation of Solution

1. Total Cost of a security remains the same as was incurred at the time of its acquisition. The shares that have been sold during the year have not been included in total cost for that year.

2. Fair Value Adjustments are the adjustments made to the total cost of a security.

Example: Total Cost of Johnsons & Johnsons stock $ 20740. Fair value as at the end of 2017 = $21500. So Fair value adjustment = $(21500-20740) = $760 i.e. increase in the value of investment.

3. Total fair value of portfolio is the total cost of portfolio as reduced by the fair value adjustments. Calculations are made as above.

To determine

3.

Introduction:

As per GAAP, Available for Sale securities are revalued at their fair values at each year end dates. This revaluation is done either by debiting Unrealised Gain/Loss- Other Comprehensive Income (OCI) A/c in case of decrease in value of the securities or by crediting Unrealised Gain/Loss- Other Comprehensive Income (OCI) A/c in case of increase in value of securities.

Realised gain on Available for sale securities is the excess of cash proceeds received on sale of the security as reduced by the fair value of the security net of Unrealised Gain/Loss on the same.

On the other hand, Realized loss is the excess of fair value of the security net of Unrealised Gain/Loss as reduced by cash proceeds received on sale of the same.

To Prepare:

A table that summarises (a) Realised gains and losses and (b) unrealized gains or losses for the portfolio of long-term available-for-sale securities at the end of each year.

Expert Solution
Check Mark

Answer to Problem 3APSA

Solution:

GRASS SECURITY
PARTICULARS 2017 2018 2019
(a) Realized Gains and losses:      
Johnsons & Johnsons - 2235 -
Sony - - 1055
Mattel - -5080 -
Sara Lee - - -4665
Eastman Kodak - - 4352
Microsoft - - -
Black & Decker - - -
Total - -2845 742
       
(b) Unrealized Gains and Losses:      
Johnsons & Johnsons 760 - -
Sony -10065 -13665 -
Mattel 5655 - -
Sara Lee - -1980 -
Eastman Kodak - 1827 -
Microsoft - - 4275
Black & Decker - - 3765
Total -3650 13818 8040

Explanation of Solution

1. Realized gains and losses for the investments arise when the investments are sold. These are computed as below:

Stock Total Cost Total Fair value adjustments Sale Proceeds Realized Gain/Loss
Johnsons & Johnsons 20740 760 22975 2235
Sony 55665 -13665 56720 1055
Mattel 40695 5655 35615 -5080
Sara Lee 13980 -1980 9315 -4665
Eastman Kodak 15498 1827 19850 4352
Microsoft* 161325 4275 - -
Black & Decker* 50835 3765 - -

*Microsoft and Black & Decker have not been sold; hence no realized gains/loss arises.

2. Unrealized Gains/Losses for investments are same as the fair value adjustments made to individual stocks.

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Chapter 15 Solutions

Loose Leaf for Fundamental Accounting Principles

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