Fundamental Accounting Principles -Hardcover
Fundamental Accounting Principles -Hardcover
22nd Edition
ISBN: 9780077862275
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

Expert Solution & Answer
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Answer to Problem 3APSA

Explanation of Solution

Introduction:

Available-for-sale (AFS) securities are securities/shares which are purchased to earn dividend, interest or to increase fair market value. When these securities are sold in the short term, then they become short term investments else they are considered as long term investments.

To determine:

1. Journal entries to record the transaction and events.
2. A table summarizing (a)Total cost, (b) Total fair value adjustment and (c) Total fair Value.
3. A table summarizing (A) the realized gains and losses, (b) the unrealized gains or losses

Solution:

1. The required journal entries and adjustment entries are shown in the explanation section.
2. The calculation is shown in the explanation section.
3. The calculation is shown in the explanation section.

Explanation:

1. The required journal entries and adjustment entries are as follows:

Entries to record purchase of shares:

    DateParticularsDebit($)Credit($)
    20.01.2015
    Long term investment (J &J)
    20740


    Cash
    (To record shares purchased)

    20740
    20.02.2015
    Long term investment- S Company
    55665


    Cash
    (To record shares purchased)

    55665
    20.06.2015
    Long term investments (M company)
    40695


    Cash
    (To record shares purchased)

    40695
    22.07.2016
    Long term investments- S company
    13980


    Cash
    (Purchase of shares)

    13980
    31.12.2016
    Long term investments (EK company)
    15498


    Cash
    (Purchase of shares)

    15498
    27.02.2016
    Long term investment-M company
    161325


    Cash
    (Purchase of shares)

    161325
    30.06.2016
    Long term investments-(B &D Company)
    50835


    Cash
    (Purchase of shares)

    50835

Working notes:
Calculation of Purchases: We use the formula mentioned below:

  Purchases=(Number of shares * Price/Unit)+Commision

    DateNumber of SharesPrice per unitCommissionPurchases
    20.01.2016
    1000
    $20.50
    $240
    $20740
    20.02.2016
    1200
    $46.20
    $225
    $55665
    20.06.2016
    1500
    $27
    $195
    $40695
    22.07.2016
    600
    $22.50
    $480
    $13980
    31.12.2016
    900
    $17
    $198
    $15498
    27.02.2016
    2400
    $67
    $525
    $161325
    30.06.2016
    1400
    $36
    $435
    $50835

The Fair Value adjustment entry is as follows:

    DateParticularsDebit($)Credit($)




    31.12.2015
    Unrealized loss −(Equity)
    40695


    Fair Value adjustment-Trading (ST)
    (To record purchase of shares)

    40695
    Date
    Particulars
    Debit($)
    Credit($)




    31.12.2015
    Fair Value Adjustment-AFS(LT)
    21858


    Unrealized Loss-Equity

    13818

    Unrealized Gain-Equity

    8040

Calculation of cost and fair value:

    J &J
    20740
    21500 (1000*$21.50)
    S
    55695
    45600(!200*$38)
    M
    40695
    46350(1500*$30.90)
    Total
    117100
    113450

FV Adjustment = Cost- Value

  =$117100$113450=$3650

Calculation of cost and fair value:

    K
    15498
    17325(900*$19.25)
    SL
    13980
    12000(600*$20)
    S
    55665
    42000(1200*$35)
    Total
    85143
    71325

Calculation of cost and fair value:

    B&D
    50835
    54600(1400*$39)
    M
    161325
    165500(2400*$69)



    Total
    212160
    220200

FV Adjustment = Cost- Value

                          =$117100$113450=$3650                        =$85143$71325=$13818                        =$212160$220200=$8040

Calculation of required balance:
FV adjustment= Required balance- unadjusted balance

                         =$13818$3560=$10168                       =$8040$13818=$21858

Entries to record Sale of shares:

    DateParticularsDebit($)Credit($)
    15.04.2016
    Cash
    22975


    Gain on sale of Short term investment (STI)

    2235

    STI − Trading (G Company)
    (Entry for sales of shares)

    20740
    05.07.2016
    Cash
    35615


    Loss on sale of investments
    5060


    Long term investments

    40695
    21.06.2016
    Cash
    56720


    Gain on sale of investments

    1055

    Long term investments − S Company

    55665
    03.08.2016
    Cash
    9315


    Loss on sale of investments
    4665


    Long term investments-SL Company

    13980
    01.11.2016
    Cash
    19850


    Gain on sale of investments

    4352

    Long term investment-E Company

    15498




Calculation of Sales received from shares:
We use the formula mentioned below:

  Sales=(Number of shares * Price/Unit)Commision

    DateNumber of SharesPrice/unitCommissionSales
    15.04.2016
    1000
    $23.50
    $525
    $22975
    05.07.2016
    1500
    $23.90
    $235
    $35615
    21.06.2016
    1200
    $48
    $880
    $56720
    03.08.2016
    600
    $16.25
    $435
    $9315
    01.11.2016
    900
    $22.75
    $625
    $19850

2. The following table summarizes the cost; fair value adjustment and fair value of portfolio on long term AFS at the end of given three years:

    Particulars31.12.2015 ($)31.12.2016($)31.12.2017($)
    Long term AFS securities (Cost)
    117100
    85143
    212160
    Less: Far Value adjustment
    (3650)
    (13818)
    8040)
    Long term AFS securities (Fair Value)
    113450
    71325
    220200




3. Statement showing realized and unrealized gains or loss at the end of given three years:

    Particulars2015($)2016($)2017($)
    Realized Gains(Losses)



    Sales of J &J Shares

    2235

    Sale of M shares

    (5080)

    Sale of SL shares


    (4665)
    Sale of S Shares


    1055
    Sale of EK shares


    4352
    Total realized Gain(Loss)
    0
    (2845)
    742
    Unrealized gain(Loss)
    (3650)
    (13818)
    8040

The unrealized gain is equal to the fair value adjustment.

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Chapter 15 Solutions

Fundamental Accounting Principles -Hardcover

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