Chapter 13: Q5P (page 658)
EXCEL (Equity Securities Entries and Disclosures) Parnevik Company has the following securities in its
investment portfolio on December 31, 2017 (all securities were purchased in 2017): (1) 3,000 shares of Anderson Co. common
stock which cost \(58,500, (2) 10,000 shares of Munter Ltd. common stock which cost \)580,000, and (3) 6,000 shares of King Company
preferred stock which cost \(255,000. The Fair Value Adjustment account shows a credit of \)10,100 at the end of 2017.
In 2018, Parnevik completed the following securities transactions.
1. On January 15, sold 3,000 shares of Anderson’s common stock at \(22 per share less fees of \)2,150.
2. On April 17, purchased 1,000 shares of Castle’s common stock at \(33.50 per share plus fees of \)1,980.
On December 31, 2018, the market prices per share of these securities were Munter \(61, King \)40, and Castle $29. In addition, the
accounting supervisor of Parnevik told you that, even though all these securities have readily determinable fair values, Parnevik
will not actively trade these securities because the top management intends to hold them for more than one year.
Instructions
(a) Prepare the entry for the security sale on January 15, 2018.
(b) Prepare the journal entry to record the security purchase on April 17, 2018.
(c) Compute the unrealized gains or losses and prepare the adjusting entry for Parnevik on December 31, 2018.
(d) How should the unrealized gains or losses be reported on Parnevik’s income statement and balance sheet?
Short Answer
Cash debited by $63,850, gain on sale of securities credited by $5,350 and equity investment credited by $58,500. Equity investment debited by $35,480 and cash credited by $35,480. Unrealized holding loss debited by $10,000 and Fair value adjustment credited by $10,000.
Step by step solution
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