Question

(Entries for Equity Securities) The following information is available for Barkley Company at December 31,

2017, regarding its investments.

Securities Cost Fair Value

3,000 shares of Myers Corporation common stock \(40,000 \)48,000

1,000 shares of Cole Incorporated preferred stock 25,000 22,000

\(65,000 \)70,000

Instructions

(a) Prepare the adjusting entry (if any) for 2017, assuming no balance in the Fair Value Adjustment account at January 1,

2017. Neither of Barkley’s investments result in significant influence.

(b) Discuss how the amounts reported in the financial statements are affected by the entries in (a).

Short answer

Unrealized holding income is $5,000. Fair value adjustment debited by $5,000 and unrealized holding gain / loss income credited by $5,000.

Step-by-step solution

Adjusting entry of the fair value adjustment

Date	Description	Debit	Credit
December 31, 2017	Fair value adjustment	$5,000
	Unrealized holding gain/loss- Income		$5,000
	Being Entry of fair value recognition

The balance of both common stock and preferred stock is adjusted to find the net fair value adjustment.

Effect of the entries in the financial statements

Yes, these entries affect the financial statements because these are related to the income statement that comes under the other comprehensive income.

In this, securities fair value adjustment is added to the investment account to calculate net fair value.