James Joyce Co. has the following available-for-sale securities outstanding on

December 31, 2008 (its first year of operations).

During 2009 D. H. Lawrence Company stock was sold for $9,200, the difference between the $9,200 and the "fair value" of $8,800 being recorded as a "Gain on Sale of Securities." The market price of the stock on December 31, 2009, was: Anna Wickham Corp. stock $19,900; Edith Sitwell Company stock $20,500.
Instructions
(a) What justification is there for valuing available-for-sale securities at fair value and reporting the unrealized gain or loss as part of stockholders' equity?
(b) How should James Joyce Company apply this rule on December 31, 2008? Explain.
(c) Did James Joyce Company properly account for the sale of the D. H. Lawrence Company stock? Explain.
(d) Are there any additional entries necessary for James Joyce Company at December 31, 2009, to reflect the facts on the financial statements in accordance with generally accepted accounting principles?Explain.

Transcribed Image Text:

Cost Fair Value Anna Wickham Corp. Stock s20,000 $19,000 8,800 20,600 50,000 $48.400 D. H. Lawrence Company Stock 0 Edith Sitwell Company Stock 10,000 20,000