Question

(Available-for-Sale Debt Securities Entries and Financial Statement Presentation) At December 31, 2017, the

available-for-sale debt portfolio for Steffi Graf, Inc. is as follows.

Security Cost Fair Value Unrealized Gain (Loss)

A \(17,500 \)15,000 (\(2,500)

B 12,500 14,000 1,500

C 23,000 25,500 2,500

Total \)53,000 \(54,500 1,500

Previous fair value adjustment balance—Dr. 400

Fair value adjustment—Dr. \)1,100

On January 20, 2018, Steffi Graf, Inc. sold security A for $15,100. The sale proceeds are net of brokerage fees.

Instructions

(a) Prepare the adjusting entry at December 31, 2017, to report the portfolio at fair value.

(b) Show the balance sheet presentation of the investment-related accounts at December 31, 2017. (Ignore notes presentation.)

(c) Prepare the journal entry for the 2018 sale of security A

Short answer

Unrealized holding loss is $1,100. Loss on the sale of security A is $2,400. Securities fair value adjustment debited by $1,100 and unrealised holding gain / loss income credited by $1,100.

Step-by-step solution

Fair value adjustment entry

Date	Description	Debit	Credit
December 31, 2017	Securities fair value adjustment	$1,100
	Unrealized holding gain/loss- Income		$1,100
	Being entry of fair value adjustment

Balance sheet representation

Assets
Current Assets
Available for sale securities	$54,500
Liabilities and Stockholder’s Equity
Accumulated other comprehensive incomes	$1,500

Entry of the sale of the securities

Date	Description	Debit	Credit
2018	Cash	$15,100
	Loss on sale	$2,400
	Available for sale securities		$17,500
	Being entry of the sale of security A