Question

(Equity Securities Entries) On December 21, 2017, Bucky Katt Company provided you with the following information

regarding its equity investments.

December 31, 2017

Investments Cost Fair Value Unrealized Gain (Loss)

Clemson Corp. stock \(20,000 \)19,000 \((1,000)

Colorado Co. stock 10,000 9,000 (1,000)

Buffaloes Co. stock 20,000 20,600 600

Total of portfolio \)50,000 \(48,600 (1,400)

Previous fair value adjustment balance –0–

Fair value adjustment—Cr. \)(1,400)

During 2018, Colorado Co. stock was sold for \(9,400. The fair value of the stock on December 31, 2018, was Clemson Corp.

stock—\)19,100; Buffaloes Co. stock—$20,500. None of the equity investments result in significant influence.

Instructions

(a) Prepare the adjusting journal entry needed on December 31, 2017.

(b) Prepare the journal entry to record the sale of the Colorado Co. stock during 2018.

(c) Prepare the adjusting journal entry needed on December 31, 2018.

Short answer

Loss on the sale of the stock is $600. Securities fair value adjustment debited by $1,400 and unrealized holding gain/ loss income credited by $1,400. Cash debited by $9,400, loss on sale debited by $600 and trading security credited by $10,000.

Step-by-step solution

Adjusting entry of the stocks on December 31, 2018

As it is given in the question that the securities fair value adjustment has a credit amount of $1,400 means the company has an unrealized income of $5,000.

Date	Description	Debit	Credit
December 31, 2017	Securities fair value adjustment	$1,400
	Unrealized holding gain/loss- Income		$1,400
	Being entry of fair value adjustment

Entry of the sale of the stock

Date	Description	Debit	Credit
December 31, 2018	Cash	$9,400
	Loss on sale	$600
	Trading security		$10,000
	Being entry of sale of stock

Adjusting entry of the year ending December 31, 2018

Date	Description	Debit	Credit
December 31, 2017	Securities fair value adjustment	$1,000
	Unrealized holding gain/loss- Income		$1,000
	Being entry of fair value adjustment

To calculate the unrealized gain or loss first of all find the difference between fair value and the cost of the remaining stocks the subtract it from the least year adjustment.