QS 15-8 Available-for-sale securities LO P3 Hiker Company completes the followin

Question

QS 15-8 Available-for-sale securities LO P3

Hiker Company completes the following transactions during the current year.

Prepare the May 9 and June 2 journal entries and the December 31 adjusting entry. This is the first and only time the company purchased such securities. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

May 9 Purchases 300 shares of Higo stock as a short-term investment in available-for-sale securities at a cost of $35 per share plus $190 in broker fees. June 2 Sells 150 shares of its investment in Higo stock at $38 per share. The broker’s commission on this sale is $110. Dec. 31 The closing market price (fair value) of the Higo stock is $33 per share.

Explanation / Answer

Since the secutirites are held as available for sale, they will be valued at fair value on Dec 31.

Workings:

May-09 Short Term Investments ((35*300)+190) 10690 To Cash A/c 10690 (Being 300 shares of Higo purchased at $35 per share) Jun-02 Cash A/c0( (150*38)-110) 5590 To Short Term Investments A/c (150*35) 5345 To Gain on sale of shares 245 (Being 150 shares of Higo sold @38 per share) Dec-31 Unrealised Loss on Investment A/c 395 To Short Term Investments A/c 395 (Being unrealised loss booked on investment)

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