Loreal-American Corporation purchased several marketable securities during 2013.

Question

Loreal-American Corporation purchased several marketable securities during 2013. At December 31, 2013, the company had the investiments in commom stock listed below. None was held at the last reporting date, December 31, 2012, and all are considered securities available - for- sale . Cost fair Value Unrealized Holding Gain ( Loss) Short term: Blair Inc. $480.000 $405.000 $ ( 75.000) ANC Corporation 450.000 480.000 30.000 Totals $ 930.000 $885.000 $ ( 45.000 ) Long Term Drake Corporation $480.000 $ 560.000 $ 80.000 Aaron Industries 720.000 660.000 ( 60.000 ) Totals $ 1.200.000 $ 1.220.000 $ 20.000 Required: 1- Prepare the apropriate adjusting entry at December 31, 2013. 2- What amounts would be reported in the income statement at December 31, 2013, as a result of the adjusting entry ? Thanks.

Explanation / Answer

an example

http://www.bizfilings.com/toolkit/sbg/finance/bookkeeping/adjusting-entries-for-unrecorded-items.aspx

Adjusting entries are recorded at the end of an accounting period to adjustledger accountsfor any changes that relate to the current accounting period but have not been recorded yet.

Most of the transactions which are recorded via adjusting entries are not spontaneous but are spread over a period of time. A common characteristic of all adjusting entries is that they involve at least one revenue or expense account.

Not alljournal entriesrecorded at the end of a period are adjusting entries. For example, an entry to record a purchase on the last day of a period is not an adjusting entry. The main purpose of adjusting entries is to matchrevenuesandexpensesto the current period which is a requirement of thematching principleof accounting.

Adjusting entries are of following types:

Accruals
Accrual adjusting entries are used to record the accrual of revenue or expenses which should be matched to the current accounting period.
Examples: accrual of interest expense, depreciation expense, etc.

Prepayments
Adjusting entries for prepayments are recorded for adjustments to prepaid expenses and unearned revenue (i.e. revenue received in advance) so that the revenues and expense are matched with the respective accounting periods.
Examples: adjustments to prepaid insurance, office supplies, prepaid rent, etc.

This example is a continuation of the accounting cycle problem we have been working on. In the previous step we prepared an unadjusted trial balance. Here we will pass adjusting entries.

The adjusting entries of Company A are:

Relevant information for the preparation of adjusting entries of Company A Office supplies having original cost $4,320 were unused till the end of the period. Office supplies having original cost of $22,800 are shown on unadjusted trial balance. Prepaid rent of $36,000 was paid for the months January, February and March. The equipment costing $80,000 has useful life of 5 years and its estimated salvage value is $14,000. Depreciation is provided using the straight line depreciation method. The interest rate on $20,000 note payable is 9%. Accrue the interest for one month. $3,000 worth of service has been provided to the customer who paid advance amount of $4,000.

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