Question

Spring 2020 - Fair Val Question 1 The following are the costs and fair values for two inve December 31, 2020. Fair Value Adjustments s for two investment in stocks (Trading Securities) on Cost Company A - Stock 1 Company A - Stock 2 S Foir Value 650,000 360,000 $ 710,000 340,000 Required: 1) Calculate the Unrealized Holding Gains and losses. 2) Does the Unrealized Holding Gains and Losses affect the inco 3) Prepare the journal entry to record any Unrealized Holding Gal ect the income Statement or Balance Sheet? d Holding Gains and Losses.

Answer 1

1) Calculation of Unrealized Holding Gains and Losses:

Unrealized Holding Gain or Loss = Fair value - Cost

Stock 1 Unrealized gain or (loss) = $710,000 - $650,000 = $60,000

Stock 2 Unrealized gain or (loss) = $340,000 - $360,000 = ($20,000)

2) Only the realized gain or loss to be recognized in income statement. The Unrealized Gain or Loss to be recorded in the statement of comprehensive income which affects owners' equity. Hence, Unrealized Gain or Loss affects Balance Sheet.

3) Journal Entry for Unrealized Gain:

Dec 31, 2020 Fair value adjustment $60,000

Unrealized Holding Gain $60,000

  

Journal Entry for Unrealized Loss:

Dec 31, 2020 Unrealized Holding Loss $20,000

Fair value adjustment $20,000