K has the following securities, all of which she purchased on 12-14-16. For each
ID: 2538384 • Letter: K
Question
K has the following securities, all of which she purchased on 12-14-16. For each investment, K owns less than 5% of the investee’s outstanding common stock.
Fair value
Fair value
Fair value
Name of Company
Number of shares
Cost per share
12/31/16
03/31/17
06/30/17
Bookface
10,000
$125
$123
$130
$127
Pear
5,000
$111
$100
$115
$113
Bank of Comerica
40,000
$35
$40
$49
On 02-10-17, K received a $0.10 cash dividend on each share of the Bank of Comerica stock.
On 04-11-17, K sold all of the Pear stock for $48 per share; K incurred and paid $125 of selling-related costs on the sales transaction.
K closes her books each quarter. Prepare the entries K should make on:
12-14-16.
12-31-16.
02-10-17.
03-31-17.
04-11-17.
06-30-17.
Fair value
Fair value
Fair value
Name of Company
Number of shares
Cost per share
12/31/16
03/31/17
06/30/17
Bookface
10,000
$125
$123
$130
$127
Pear
5,000
$111
$100
$115
$113
Bank of Comerica
40,000
$35
$40
$49
Explanation / Answer
Note 1: Since K has less than 5% holding of total stock for each of the company, the investment qualifies as “Available-for-Sale” security and all the journal entries are made on that basis only.
Note 2: The table given in the question and the selling price of the stock suggest that the stock sold from the investment on 04-11-17 was “Bank of Comerica” stocks and I have made the journal entries accordingly. Please re-check the related information posted in the question as it contradicts with the table.
Date
Account
Debit
Credit
14-Dec-16
Available for Sale Securities - Bookface
1250000
Available for Sale Securities - Pear
555000
Available for Sale Securities - Bank of Comerica
1400000
Cash
3205000
To record investment in "Available for Sale" securities
31-Dec-16
Unrealized Loss - Bookface
20000
Unrealized Loss - Pear
55000
Unrealized Gain - Bank of Comerica
200000
Available for Sale Securities - Bookface
20000
Available for Sale Securities - Pear
55000
Available for Sale Securities - Bank of Comerica
200000
To record unrealized loss and gain due to change in fair value
10-Feb-17
Cash
4000
Dividend Income
4000
To record receipt of cash dividends
31-Mar-17
Unrealized Gain - Bookface
70000
Unrealized Gain - Pear
75000
Unrealized Gain - Bank of Comerica
360000
Available for Sale Securities - Bookface
70000
Available for Sale Securities - Pear
75000
Available for Sale Securities - Bank of Comerica
360000
To record unrealized loss and gain due to change in fair value
11-Apr-17
Available for Sale Securities - Bank of Comerica
1960000
Unrealized Gain - Bank of Comerica
360000
Cash
1920000
Realized Gain - Bank of Comerica
320000
To record sale of "Available for sale" security (Bank of Comerica Stock)
30-Jun-17
Unrealized Loss - Bookface
30000
Unrealized Loss - Pear
10000
Available for Sale Securities - Bookface
30000
Available for Sale Securities - Pear
10000
To record unrealized loss due to decrease in fair value
Date
Account
Debit
Credit
14-Dec-16
Available for Sale Securities - Bookface
1250000
Available for Sale Securities - Pear
555000
Available for Sale Securities - Bank of Comerica
1400000
Cash
3205000
To record investment in "Available for Sale" securities
31-Dec-16
Unrealized Loss - Bookface
20000
Unrealized Loss - Pear
55000
Unrealized Gain - Bank of Comerica
200000
Available for Sale Securities - Bookface
20000
Available for Sale Securities - Pear
55000
Available for Sale Securities - Bank of Comerica
200000
To record unrealized loss and gain due to change in fair value
10-Feb-17
Cash
4000
Dividend Income
4000
To record receipt of cash dividends
31-Mar-17
Unrealized Gain - Bookface
70000
Unrealized Gain - Pear
75000
Unrealized Gain - Bank of Comerica
360000
Available for Sale Securities - Bookface
70000
Available for Sale Securities - Pear
75000
Available for Sale Securities - Bank of Comerica
360000
To record unrealized loss and gain due to change in fair value
11-Apr-17
Available for Sale Securities - Bank of Comerica
1960000
Unrealized Gain - Bank of Comerica
360000
Cash
1920000
Realized Gain - Bank of Comerica
320000
To record sale of "Available for sale" security (Bank of Comerica Stock)
30-Jun-17
Unrealized Loss - Bookface
30000
Unrealized Loss - Pear
10000
Available for Sale Securities - Bookface
30000
Available for Sale Securities - Pear
10000
To record unrealized loss due to decrease in fair value
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.