Exercise 17B-9 (Part Level Submission) At December 31, 2017, the available-for-s
ID: 2567359 • Letter: E
Question
Exercise 17B-9 (Part Level Submission) At December 31, 2017, the available-for-sale debt portfolio for Pharoah, Inc. is as follows. Security Cost Fair Value Unrealized Gain (Loss) $(4,875) $34,125 24,375 44,850 $103,350 $29,250 27,300 49,725 $106,275 2,925 4,875 2,925 780 $2,145 Total Previous fair value adjustment balance-Dr. Fair value adjustment-Dr ity A for $29,445. The sale proceeds are net of brokerage fees (a) Your answer is correct. Prepare the adjusting entry at December 31, 2017, to report the portfolio at fair value. (Credit account titles are automati required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit Fair Value Adjustment 2145 Unrealized Holding Gain or Loss- Equity 2145Explanation / Answer
(a) The portfolio should be reported at the fair value of $106,275. Since the cost of the portfolio is $103,350, the unrealized holding gain is $2,925, of which $780 is already recognized. Therefore, the December 31, 2017 adjusting entry should be:
Fair Value Adjustment
(available-for-sale)........................................................ 2,145
Unrealized Holding Gain or Loss—Equity.......... 2,145
(b) The unrealized holding gain of $2,925 (including the previous balance of $780) should be reported as an addition to stockholders’ equity and the Fair Value Adjustment (available-for-sale) account balance of $2,925 should be added to the cost of the investment account.
PHAROAH, INC.
Balance Sheet
As of December 31, 2017
__________________________________________________________
Current assets:
Equity investments $106,275
Stockholders’ equity:
Common stock xxx,xxx
Additional paid-in capital xxx,xxx
Retained earnings xxx,xxx
xxx,xxx
Add: Accumulated other comprehensive income 2,925*
Total stockholders’ equity $xxx,xxx
*Note: The unrealized holding gain could also be disclosed.
(c) Computation of realized gain or loss on sale of stock:
Net proceeds from sale of security A $29,445
Cost of security A 34,125
Loss on sale of stock ($ 4,680)
January 20, 2018
Cash............................................................................... 29,445
Loss on Sale of Investments..................................... 4,680
Equity Investments (available-for-sale)........... 34,125
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