Question

As of December 31, 2014, Kaman Corp. held two Equity Securities. Information regarding these securities is as follows:

Security     Date Acquired     Acquisition Cost     Market Value (12/31/14)

A 1/16/14 $35,000   $36,000

B 2/22/14 $88,000 $79,000

Based on the information given, create the journal entry that would be recorded on 12/31/14.

For each line item of the journal entry write whether it is a Dr. or Cr., the account name, and amount.

Answer 1

Accounting principles and accounting policies value of the investments to be revalued at the end of the year based on the following points :-

1. Investments to be valued in the books of accounts whether the book value of share market value whichever is lower.

2. The given information we have four values of the two securities to market values into book value.

3. Now we have to read value the securities on the basis of the above said point.

The security A

The book value - 35000

The market value - 36000

So here we observe both the market values and book values. The book value of the security is 35000 and the market value of the security is 36000 so here the book value is lower than the market value show the value of the security 8 to be represented in the balance sheet is 35000.

Security B

The book value - 88000

The market value - 79000

So here we observe the values of the security B. Book value and market value. The book value of the security is 88000 in the market value of the security is 79000.

yada market value is lower than the book value security be is to be evaluated at 79000.

Request journal entry is as follows:-

Profit and loss a/c.........................dr 9000

To security B a/c 9000

(bring the value of security b is evaluated as per market value and book value and transfer the difference to the profit and loss)

as a security has lower book value compared to the market value so there is no journal entry required to record the journal entry for security A.

These are all the required journal entries to solve the given question.

I hope, all the above given explanation and points are useful and helpful to you.

Thank you.