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Fair Value Journal Entries, Available-for-Sale Investments Hurricane Inc. purchased a portfolio of available-for-sale securities in...

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Accounting

Fair Value Journal Entries, Available-for-Sale Investments

Hurricane Inc. purchased a portfolio of available-for-sale securities in Year 1, its first year of operations. The cost and fair value of this portfolio on December 31, Year 1, was as follows:

Name Number of Shares Total Cost Total Fair Value
Tornado, Inc. 1,100 $14,740 $16,360
Tsunami Corp. 900 29,520 32,180
Typhoon Corp. 300 9,300 8,840
Total $53,560 $57,380

On June 12, Year 2, Hurricane purchased 600 shares of Rogue Wave Inc. at $31 per share plus a $100 brokerage commission.

a. Provide the journal entries to record the following:

The adjustment of the available-for-sale security portfolio to fair value on December 31, Year 1.

The June 12, Year 2, purchase of Rogue Wave Inc. stock.

Year 1 Dec. 31
Year 2 June 12

b. How are unrealized gains and losses treated differently for available-for-sale securities than for trading securities?

Unrealized gains and losses for available-for-sale securities reported as a credit (positive) or debit (negative) balance in the section. As a result, the changes in fair value are not reflected on the , as is the case with trading securities.

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