Question

On December 21, 2017, Zurich Company provided you with the following information regarding its trading investments.

December 31, 2017

Investments (Trading) Cost Fair Value Unrealized Gain (Loss)

Stargate Corp. shares \(20,000 \)19,000 \((1,000)

Carolina Co. shares 10,000 9,000 1000

Vectorman Co. shares 20,000 20,600 600

Total of portfolio \)50,000 \(48,600 \)(1,400)

Previous fair value adjustment balance-0-

Fair value adjustment-Cr. \((1,400)

During 2018, Carolina Co. shares were sold for \)9,500. The fair value of the shares on December 31, 2018, was Stargate Corp.

shares-\(19,300: Vectorman Co. shares-\)20,500

Instructions

(a) Prepare the adjusting journal entry needed on December 31, 2017.

(b) Prepare the journal entry to record the sale of the Carolina Co. shares during 2018.

(c) Prepare the adjusting journal entry needed on December 31, 2018.

Short answer

Unrealised holding gains or loss debited and fair value adjustment credited by $1,400. Cash debited by $500, loss on sale of investment debited by $500 and trading investment credited by $10,000. The unrealised holding loss is $200.

Step-by-step solution

Adjusting entry at the end of the year

Date	Particulars	Debit	Credit
December 31, 2017	Unrealised Holding Gain or Loss-Loss	$1,400
	Fair Value Adjustment		$1,400
	(Being entry of fair value adjustment)

Entry for the sale of investment

Date	Particulars	Debit	Credit
December 31, 2018	Cash	$9,500
	Loss on sale of investment	$500
	trading Investment		$10,000
	(Being entry for the loss on sale of investment)

Adjusting entry at the end of the year

Date	Particulars	Debit	Credit
December 31, 2018	Unrealised Holding Gain or Loss-Loss	$200
	Fair Value Adjustment		$200
	(Being entry of fair value adjustment)