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.	1,250		$16,750		$18,590
Tsunami Corp.	850		27,880		30,390
Typhoon Corp.	200		6,400		6,080
	Total			$51,030		$55,060

On June 12, Year 2, Hurricane purchased 600 shares of Rogue Wave Inc. at $32 per share plus a $80 brokerage commission.

a. Provide the journal entries to record the following:

1. The adjustment of the available-for-sale security portfolio to fair value on December 31, Year 1.
2. The June 12, Year 2, purchase of Rogue Wave Inc. stock.

Year 1, Dec. 31	Available-for-Sale Investments-Rogue Wave Inc.CashCash DividendsUnrealized Gain (Loss) on Available-for-Sale InvestmentsValuation Allowance for Available-for-Sale Investments	- Select -
	Available-for-Sale Investments-Rogue Wave Inc.CashCash DividendsUnrealized Gain (Loss) on Available-for-Sale InvestmentsValuation Allowance for Available-for-Sale Investments		- Select -
Year 2, June 12	CashCash DividendsInvestments-Rogue Wave Inc.Unrealized Gain (Loss) on Available-for-Sale InvestmentsValuation Allowance for Available-for-Sale Investments	- Select -
	Available-for-Sale Investments-Rogue Wave Inc.CashCash DividendsUnrealized Gain (Loss) on Available-for-Sale InvestmentsValuation Allowance for Available-for-Sale Investments		- Select -

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

Other income(loss)Stockholders' Equity

section. As a result, the changes in fair value are not reflected on the

balance sheetincome statement

, as is the case with trading securities.

2)On January 6, Year 1, Bulldog Co. purchased 29% of the outstanding stock of Gator Co. for $176,000. Gator Co. paid total dividends of $19,400 to all shareholders on June 30. Gator Co. had a net loss of $33,400 Year 1.

a. Journalize Bulldog's purchase of the stock, receipt of the dividends, and the adjusting entry for the equity loss in Gator Co. stock.

Jan. 6 - Purchase	CashCash DividendsDividend RevenueInvestment in Gator Co. StockLoss on Gator Co. StockNotes Receivable	- Select -
	CashCash DividendsDividend RevenueInvestment in Gator Co. StockLoss on Gator Co. StockNotes Receivable		- Select -
June 30 - Dividend	CashCash DividendsDividend RevenueInvestment in Gator Co. StockLoss on Gator Co. StockNotes Receivable	- Select -
	CashCash DividendsDividend RevenueInvestment in Gator Co. StockLoss on Gator Co. StockNotes Receivable		- Select -
Dec. 31 - Equity Loss	CashCash DividendsDividend RevenueInvestment in Gator Co. StockLoss of Gator Co.Notes Receivable	- Select -
	CashCash DividendsDividend RevenueInvestment in Gator Co. StockLoss on Gator Co. StockNotes Receivable		- Select -

b. Compute the balance of Investment in Gator Co. Stock on December 31, Year 1. $fill in the blank 8539b1019024fcb_1

c. How does valuing an investment under the equity method differ from valuing an investment at fair value?

Under the

equityfair value

method, the investor will record their proportionate share of the net increase (or decrease) of the book value of the investee resulting from earnings and dividend distributions. The

equityfair value

method uses market price information to value the investment in the investee.