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10 September, 08:36

Carlsville Company began operations in the current year and had no prior stock investments. The following transactions are from its short-term stock investments with insignificant influence.

On December 31, prepare the adjusting entry to record the fair value adjustment for the portfolio of stock investments.

July 22 Purchased 1,500 shares of Hunt Corp. at $29 per share.

Sept. 5 Received a $2 cash dividend for each share of Hunt Corp.

Sept. 27 Purchased 3,300 shares of HCA at $25 per share.

Oct. 3 Sold 1,500 shares of Hunt at $24 per share.

Oct. 30 Purchased 1,000 shares of Black & Decker at $57 per share.

Dec. 17 Received a $3 cash dividend for each share of Black & Decker.

Dec. 31 Fair value of the short-term stock investments is $144,000.

Prepare journal entries to record these transactions.

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Answers (2)
  1. 10 September, 09:33
    0
    short-term Hunt Corp 43,500 debit

    cash 43,500 credit

    cash 3,000 debit

    gain on investment 3,000 credit

    sshort-term HCA 82,500 debit

    cash 82,500 credit

    cash 36,000 debit

    loss on investment 7,500 debit

    short-term Hunt Corp 43,500 credit

    short-term Black and Decker 57,000 debit

    cash 57,000 credit

    cash 3,000 debit

    gain on investment 3,000 credit

    short-term investment 4,500 debit

    unrealized gain 4,500 credit

    Explanation:

    we have to multiply the share cost by the amount we acquire

    same goes for sales and compare with the cost to solve for short-term capital gains when we sale and unrealized gains if we don't sale.

    when we receive dividends we recognize a gain.

    last we check for the book value and compare with the fair value:

    B&D 57,000

    HCA 82,500

    Total 139,500

    Fair value 144,000

    unrealized gain 4,500
  2. 10 September, 11:10
    0
    date details Dr Cr

    22-Jul stock investment 43500

    bank 43500

    5-Sep bank 3000

    dividend 3000

    27-Sep stock investment 82500

    bank 82500

    3-Oct bank 36000

    stock investment 36000

    30-Oct stock investment 57000

    bank 57000

    17-Dec bank 3000

    dividends 3000

    31-Dec fair value loss 3000

    stock investment 3000

    Explanation:

    For every shares bought to get total amount paid we take the number of shares bought at that date and multiple by the amount per share.

    for every dividend paid received, we take the amount received per share owned and multiple by total number of shares owned.

    for the fair value loss, we compare the value of the stock investment portfolio to the fair value at the end of the year and adjust the portfolio value to the fair value at the end of the year.
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