Available-for-Sale Securities

Instructions

Chart of Accounts

General Journal

Analysis

Next Level

Instructions

At the beginning of 2018, Ace Company had the following portfolio of investments in available-for-sale debt securities (all of which were acquired at par value):

Security	Cost	1/1/18 Fair Value
A	$35,000	$44,000
B	53,000	50,000
Totals	$88,000	$94,000

During 2018, the following transactions occurred:

May 3	Purchased C debt securities at their par value for $50,000.
July 1	Sold all of the A securities for $44,000 plus interest of $1,000.
Dec. 31	Received interest of $1,000 on the B and C securities. Additionally the following information was available:

Security	12/31/18 Fair Value
B	$58,000
C	53,000

Required:

1.	Prepare journal entries to record the preceding information.
2.	What is the balance in the Unrealized Holding Gain/Loss account on December 31, 2018?
3.	Next Level What justification does the FASB give for its treatment of unrealized holding gains and losses for available-for-sale securities?

Chart of Accounts

CHART OF ACCOUNTS

Ace Company

General Ledger

	ASSETS
111	Cash
114	Investment in Available-for-Sale Securities
119	Allowance for Change in Fair Value of Investment
121	Accounts Receivable
141	Inventory
151	Supplies
152	Prepaid Insurance

	LIABILITIES
211	Accounts Payable
221	Notes Payable
224	Interest Payable
231	Salaries Payable

	EQUITY
311	Common Stock
331	Retained Earnings
391	Unrealized Holding Gain/Loss: Available-for-Sale Securities

	REVENUE
411	Sales Revenue
431	Interest Income
435	Gain on Sale of Available-for-Sale Securities

	EXPENSES
500	Cost of Goods Sold
511	Insurance Expense
512	Utilities Expense
513	Delivery Expense
515	Supplies Expense
521	Advertising Expense
523	Salaries Expense
531	Bad debt Expense
539	Miscellaneous Expenses
540	Interest Expense

General Journal

Prepare journal entries to record the 2018 transactions. Additional Instructions

PAGE 1

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
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Analysis

What is the balance in the Unrealized Holding Gain/Loss account on December 31, 2018?

Next Level

What justification does the FASB give for its treatment of unrealized holding gains and losses for available-for-sale securities?

FASB requires unrealized holding gains and losses for available-for-sale securities to be reported as a component of other comprehensive income because:

I	Reporting unrealized holding gains and losses in income for available-for-sale securities would create unnecessary volatility in a company's reported net income.
II	The securities are actively managed making the inclusion of gains and losses irrelevant.