The accounting records of Jamaican Importers, Inc., at January 1, 2018, included

Question

The accounting records of Jamaican Importers, Inc., at January 1, 2018, included the following:

Assets:

Investment in IBM common shares

$ 1,345,000

Less: Fair value adjustment

   (145,000)

$ 1,200,000

Shareholders’ Equity:

Accumulated unrealized holding gains and losses

$ 145,000

No changes occurred during 2018 in the investment portfolio.

Required:

Prepare appropriate adjusting entry(s) at December 31, 2018, assuming the fair value of the IBM common shares was:

1) $1,175,000

2) $1,275,000

3) $1,375,000

Assets:

Investment in IBM common shares

$ 1,345,000

Less: Fair value adjustment

   (145,000)

$ 1,200,000

Shareholders’ Equity:

Accumulated unrealized holding gains and losses

$ 145,000

Explanation / Answer

ans)

1. Accumulated unrealised holding gains and losses 25000

Fair value adjustment 25000

cost - fair value = 1345000 - 1175000 =170000

Fair ValueAdjustment

Balance needed in fair value adjustment$ 170000

Existing balance in fair value adjustment:$ (145000)

Increase (decrease) needed in fair value adjustment: 25000

2) $1275000

Fair value adjustment 75000

Accumulated unrealised holding gains and losses 75000

(1275000 - 1200000)

3. $1375000

Fair value adjustment 175000

Accumulated unrealised holding gains and losses 175000

(1375000 - 1200000)

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