Question
If Hurricane Inc. purchased a portfolio ofavailable-for-sale securitiesin Year 1, its first year of operations. The cost and fair value of this portfolio on December
If Hurricane Inc. purchased a portfolio ofavailable-for-sale securitiesin 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. 1,150 $15,410 $17,110
Tsunami Corp. 850 27,880 30,390
Typhoon Corp. 200 5,800 5,510
Total $49,090 $53,010
On June 12, Year 2, Hurricane purchased 550 shares of Rogue Wave Inc. at $29 per share plus a $50 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.
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