Hurricane Inc. purchased a portfolio of available-for-sale securities in 2016, i
ID: 340655 • Letter: H
Question
Hurricane Inc. purchased a portfolio of available-for-sale securities in 2016, its first year of operations. The cost and fair value of this portfolio on December 31, 2016, was as follows:
1
Name
Number of Shares
Total Cost
Total Fair Value
2
Tornado Inc.
800.00
$14,000.00
$15,600.00
3
Tsunami Corp.
1,250.00
31,250.00
35,000.00
4
Typhoon Corp.
2,140.00
43,870.00
42,800.00
5
Total
$89,120.00
$93,400.00
On June 12, 2017, Hurricane purchased 1,450 shares of Rogue Wave Inc. at $45 per share plus a $100 brokerage commission.
Required:
1
Name
Number of Shares
Total Cost
Total Fair Value
2
Tornado Inc.
800.00
$14,000.00
$15,600.00
3
Tsunami Corp.
1,250.00
31,250.00
35,000.00
4
Typhoon Corp.
2,140.00
43,870.00
42,800.00
5
Total
$89,120.00
$93,400.00
Explanation / Answer
Solution A:
Solution B:
Unrealized gains and losses on available for sale securities does not become part of earnings for company instead they are reported in "Other comprehensive Income". However for trading securties any change in fair value should be recoganized in income statement and become part of earnings of the company.
Journal Entries - Hurricane INC. Date Particulars Debit Credit 31-Dec-16 Investment in Torando INC. - Available for Sale Dr $1,600.00 Investment in Tsunami Corp. - Available for Sale Dr $3,750.00 To Investment in Typhoon Corp. - Available for Sale $1,070.00 To Unrealized holding gain on investment (OCI) $4,280.00 (Being fair value adjustment on AFS securities) 12-Jun-17 Investment in Rough Wave INC. - Available for Sale Dr (1450*$45 + $100) $65,350.00 To Cash $65,350.00 (Being investment made in share of Rough Wave)Related Questions
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