Question

(Gain on Sale of Investments and Comprehensive Income) On January 1, 2017, Acker Inc. had the followingbalance sheet.

The accumulated other comprehensive income related to unrealized holding gains on available-for-sale debt securities. The fairvalue of Acker Inc.’s available-for-sale debt securities at December 31, 2017, was \(190,000; its cost was \)140,000. No securities

were purchased during the year. Acker Inc.’s income statement for 2017 was as follows. (Ignore income taxes.)

ACKER INC.

BALANCE SHEET

AS OF JANUARY 1, 2017

Assets Equity

Cash \( 50,000 Common stock \)260,000

Debt investments (available-for-sale) 240,000 Accumulated other comprehensive income 30,000

Total \(290,000 Total \)290,000

ACKER INC.

INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2017

Dividend revenue \( 5,000

Gain on sale of investments 30,000

Net income \)35,000

Instructions

(Assume all transactions during the year were for cash.)

(a) Prepare the journal entry to record the sale of the available-for-sale debt securities in 2017.

(b) Prepare the journal entry to record the Unrealized Holding Gain or Loss for 2017.

(c) Prepare a statement of comprehensive income for 2017.

(d) Prepare a balance sheet as of December 31, 2017.

Short answer

Cash debited by $170,000, gain on sale of investment credited by $30,000 and debt investment credited by $140,000. Fair value adjustmentdebited by $50,000 and unrealized holding gain credited by $50,000. Gain on sale of investment is $30,000

Step-by-step solution

Entry for the sale of investment

Date	Particulars	Debit	Credit
December 2017	Cash	$170,000
	Gain on sale of investment		$30,000
	Debt Investment		$140,000
	(Entry for the sale of debt investment)

Entry for fair value adjustment

Date	Particulars	Debit	Credit
December 2017	Fair value adjustment	$50,000
	Unrealized holding gain		$50,000
	(Being entry for the fair value adjustment)

Statement of comprehensive income

Statement of comprehensive income
Year ending December 31, 2017
Particulars	Amount
Net Income	$35,000
Add:
Other comprehensive income	$50,000
Comprehensive income	$85,000

Balance sheet for the year ending

Assets	Amount	Equity	Amount
Cash	$220,000	Common Stock	$260,000
Investment	$100,000	Accumulated Comprehensive gain	$60,000
	$320,000		$320,000