Question

(Equity Securities Entries and Reporting) Satchel Corporation purchases equity securities costing \(73,000. At

December 31, the fair value of the portfolio is \)65,000.

Instructions

Prepare the adjusting entry to report the securities properly, assuming that the investments purchased represent less than a

5% interest in the other companies. Indicate the statement presentation of the accounts in your entry.

Short answer

The unrealized account is debited with the loss of $8,000. Unrealised holding gain/ loss debited and fair value adjustment credited by $8,000.

Step-by-step solution

Step 1:Definition of equity

Equity is the portion of fund or finance provided by the owners of the company. Equity is considered as the internal liability due to accounting entity principle.

Entry of fair value adjustment

Date	Description	Debit	Credit
December 31	Unrealized holding gain/loss- loss	$8,000
	Fair Value Adjustment ($73,000 - $65,000)		$8,000
	Being Entry of fair value recognition

The unrealized losses and gains are rises due to the change in the fair value of the securities. When the fair value of the security increase it means there is the unrealized gain on the other hand if the fair value of the security decreases it means there is unrealized loss. Unrealized gain or loss is a part of the income statement. It is a part of the net income hence, to adjust this, entry will be made.