Fair Value Journal Entries, Available-for-Sale Investments

Hurricane Inc. purchased a portfolio of available-for-sale securities in Year 1, its first year of operations. The cost and fair value of this portfolio on December 31, Year 1, was as follows:

Name		Number of Shares		Total Cost		Total Fair Value
Tornado, Inc.		1,100		$14,740		$16,360
Tsunami Corp.		900		29,520		32,180
Typhoon Corp.		300		9,300		8,840
	Total			$53,560		$57,380

On June 12, Year 2, Hurricane purchased 600 shares of Rogue Wave Inc. at $31 per share plus a $100 brokerage commission.

a. Provide the journal entries to record the following:

The adjustment of the available-for-sale security portfolio to fair value on December 31, Year 1.

The June 12, Year 2, purchase of Rogue Wave Inc. stock.

Year 1 Dec. 31
Year 2 June 12

b. How are unrealized gains and losses treated differently for available-for-sale securities than for trading securities?

Unrealized gains and losses for available-for-sale securities reported as a credit (positive) or debit (negative) balance in the section. As a result, the changes in fair value are not reflected on the , as is the case with trading securities.