Question

Larkspur Company has the following securities in its investment portfolio on December 31, 2020 (all securities were purchased in 2020): (1) 2,800 shares of Anderson Co. common stock which cost $53,200, (2) 10,700 shares of Munter Ltd. common stock which cost $599,200, and (3) 6,000 shares of King Company preferred stock which cost $258,000. The Fair Value Adjustment account shows a credit of $10,100 at the end of 2020.

In 2021, Larkspur completed the following securities transactions.

1.		On January 15, sold 2,800 shares of Anderson’s common stock at $23 per share less fees of $2,040.
2.		On April 17, purchased 1,000 shares of Castle’s common stock at $34 per share plus fees of $1,960.

On December 31, 2021, the market prices per share of these securities were Munter $62, King $40, and Castle $23. In addition, the accounting supervisor of Larkspur told you that, even though all these securities have readily determinable fair values, Larkspur will not actively trade these securities because the top management intends to hold them for more than one year.

Compute the unrealized gains or losses then prepare the adjusting entry for Larkspur on December 31, 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Answer 1

Solution:

Below is the calculation of Unrealized gain/Loss and adjusting entry:

Unrealized Gain = $43,340

Date General Journal Dec. 31, 2021 Fair value adjustment Unrealized holding Gain or Loss Debit Credit $43,340 $43,340

Working:

Fair value of Investment (No. of share * Market price) Cost of Investment Unrealized Gain or (Loss) Previous Credit balance in Fair value Adjustment Security Fair value adjustment Muntner Ltd's common stock King Company's Preferred stock Castle's Common stock Total of Portfolio $663,400 $240,000 $23,000 $926,400 $599,200 $258,000 $35,960 $893,160 $64,200 ($18,000) ($12,960) $33,240 $10,100 $43,340