EX 15-20 Fair value journal entries, available-for-sale investments

The investments of Steelers Inc. include a single investment: 33,100 shares of Bengals Inc. common stock purchased on September 12, 2014, for $13 per share including brokerage commission. These shares were classified as available-for-sale securities. As of the December 31, 2014, balance sheet date, the share price declined to $11 per share.


a. Journalize the entries to acquire the investment on September 12 and record the adjustment to fair value on December 31, 2014.

b. How is the unrealized gain or loss for available-for-sale investments disclosed on the financial statements?


Answer:

a.
2014
Sept. 12 Investments—Bengals Inc. Stock 430,300
Cash 430,300
33,100 shares × $13 per share.
Dec. 31 Unrealized Gain (Loss) on Available-forSale
Investments 66,200
Valuation Allowance for Available-for-Sale
Investments 66,200
33,100 shares × ($11 per share – $13 per
share).
b. Unrealized Gain (Loss) on Available-for-Sale Investments is reported in the Stockholde
Equity section of the balance sheet, separately from the retained earnings or paid-in
capital accounts. On December 31, 2014, the account would show a debit balance of
$66,200, which would be subtracted from stockholders’ equity.