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boyakko [2]
3 years ago
9

The following information shows Carperk Company's individual investments in securities during its current year, along with the D

ecember 31 fair values. Investment in Brava Company bonds: $416,850 cost; $453,116 fair value. Carperk intends to hold these bonds until they mature in 5 years. Investment in Baybridge common stock: 29,500 shares; $331,396 cost; $360,227 fair value. Carperk owns 32% of Baybridge's voting stock and has a significant influence over Baybridge. Investment in Duffa bonds: $170,909 cost; $184,240 fair value. This investment is not readily marketable and is not classified as held-to-maturity or trading. Investment in Newton notes: $95,042 cost; $93,426 fair value. Newton notes are not readily marketable and are not classified as held-to-maturity or trading. Investment in Farmers common stock: 16,300 shares; $104,213 cost; $110,674 fair value. This stock is marketable, and Carperk intends to sell it within the year. This stock investment results in Carperk having an insignificant influence over Farmers. Required: 1. Identify whether each investment should be classified as a short-term or long-term investment. For each investment, indicate in which of the six investment classifications it should be placed. 2. Prepare a journal entry dated December 31 to record the fair value adjustment for the portfolio of available-for-sale debt securities. Carperk had no available-for-sale debt securities prior to this year.
Business
1 answer:
melamori03 [73]3 years ago
7 0

Answer:

a. See the table below.

b. Debit Fair value adjustment - Available-for-sale for $47,981; and Credi Unrealized gain - Debt for $47,981.

Explanation:

1. Identify whether each investment should be classified as a short-term or long-term investment. For each investment, indicate in which of the six investment classifications it should be placed.

This can be done as follows:

<u>No.      Types of investment           Classification of investment           </u>

a.         Long-term investment         Debt investment held to maturity

b.         Long-term investment         Equity method investments 20%-50%

c.         Long-term investment         Available for sale dbt securities

d,         Long-term investment         Available for sale dbt securities

e.         Short-term investment        Stock investment <20%

2. Prepare a journal entry dated December 31 to record the fair value adjustment for the portfolio of available-for-sale debt securities. Carperk had no available-for-sale debt securities prior to this year.

The journal entries will look as follows:

<u>General Journal                                               Debit ($)           Credit ($)  </u>

Fair value adjustment - Available-for-sale     47,981

Unrealized gain - Debt (w.1)                                                        47,981

<em><u>(To record the fair value adjustment for the portfolio of available-for-sale debt securities).  </u></em>

<u>Workings (w.1):</u>

No      Fair Value ($)       Cost ($)         Gain (loss) ($)

                    A                       B                   C = A - B

a.              453,116            416,850               36,266

c.             184,240            170,909                 13,331

d.           <u>   93,426   </u>        <u>   95,042 </u>                <u>  (1,616) </u>

Total      <u>  730,782 </u>        <u>  682,801 </u>            <u>   47,981 </u>

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