Price
12/31/2016 $26
12/31/2017 $23
12/31/2018 $30
Slick Rocks sold all of the Sandstone stock on February 14, 2019, at a price of $32 per share.
Prepare any journal entries that are required by the facts presented in this case.
Explanation:
June 30, 2016: Investments in AFS securities = (10,600 shares × $21) = 222,600
Computations:
Year Fair Value − Book Value before Adjustment =
Amount for
Adjusting Entry
2016 $275,600 − $222,600 = +$53,000
($26 × 10,600) shares ($21 × 10,600 shares)
2017 243,800 − 275,600 = − 31,800
($23 × 10,600 shares) (from prior fair value)
2018 318,000 − 243,800 = + 74,200
($30 × 10,600 shares) (from prior fair value)
Balance in net unrealized gains (losses) + $95,400
February 14, 2019: Cash = (10,600 shares × $32) = 339,200
Note: The net unrealized gains (losses) account is a balance sheet account. It does not affect the computation of net income each year. Because it is a balance sheet account, it maintains its balance from year to year. Therefore, the decline in stock price that occurs in 2017 is reported as an adjustment to the net unrealized gains (losses) account. When the stock is sold in 2019, the net unrealized gains (losses) is closed, and the difference between the purchase price (original cost) and the selling price is reported as a gain on the income statement.
An unrealized gains is an increase in the cost of an asset, which includes a stock function or a commodity like gold, that has but to be bought for cash. A gain will become found out once the placement is bought for a income.
What are examples of unrealized gains?
An awesome example of an unrealized gains is a piece of preferred property that a business owns. If Dave's restaurant bought a chunk of land in 1960 for $10,000 and today it is worth $30,000, Dave could have an unrealized advantage at the piece of assets for $20,000.
Are you taxed on unrealized gains?
Unrealized gains don't have any bearing in your taxes because they are not real earnings; however, if you switch the ones paper profits into actual income by way of promoting an funding asset for more than your unique foundation, you'll should report the income to the internal sales service.
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