There Is A Question That I Need To Solve In Excel In Decembe
There Is A Question That I Need To Solve In Excelon December 21 201
There is a question that I need to solve in Excel. On December 21, 2013, Bucky Katt Company provided you with the following information regarding its trading securities. Investments (Trading) Clemson Corp. stock Colorado Co. stock Buffaloes Co. stock Total of portfolio Previous fair value adjustment balance Fair value adjustment—Cr. December 31, 2013 Cost $20,000 10,000 20,000 $50,000 Fair Value $19,000 9,000 20,600 $48,600 Unrealized Gain (Loss) $(1,400) –0– $(1,400) During 2014, Colorado Company stock was sold for $9,400. The fair value of the stock on December 31, 2014, was Clemson Corp. stock—$19,100; Buffaloes Co. stock—$20,500. (a) Prepare the adjusting journal entry needed on December 31, 2013. (b) Prepare the journal entry to record the sale of the Colorado Company stock during 2014. (c) Prepare the adjusting journal entry needed on December 31, 2014.
Paper For Above instruction
Introduction
The accounting for trading securities involves recognizing unrealized gains and losses, recording adjustments at period-end, and properly accounting for sales during the period. This paper discusses the journal entries necessary to record the fair value adjustments at December 31, 2013, the sale of Colorado Company stock in 2014, and the fair value adjustments at December 31, 2014. These entries ensure that financial statements accurately reflect the market value of securities and the realized gains or losses from sales.
Part (a): Adjusting Journal Entry on December 31, 2013
At each reporting period, companies must adjust the carrying amount of trading securities to fair value and recognize unrealized gains or losses in earnings. On December 31, 2013, Bucky Katt Company needs to adjust for the unrealized loss of $1,400.
The original cost of the securities totals $50,000, with a fair value of $48,600, indicating an unrealized loss of $1,400. The journal entry is:
```plaintext
Dr. Unrealized Loss on Trading Securities $1,400
Cr. Fair Value Adjustment—Trading Securities $1,400
```
This entry decreases the carrying amount of the securities to their fair value and recognizes the unrealized loss in earnings, as required by GAAP for trading securities.
Part (b): Journal Entry to Record Sale of Colorado Company Stock in 2014
During 2014, Colorado Company stock was sold for $9,400. The original cost of this stock was $10,000, and the fair value at December 31, 2013, was $9,000. The sale proceeds are higher than the cost but less than the fair value at the prior period-end; the sale results in a realized loss.
The sale entry involves:
- Removing the security from the accounts based on its adjusted carrying amount (cost adjusted for fair value adjustments previously recognized),
- Recording cash received,
- Recognizing the realized gain or loss.
Since the original cost was $10,000 and the fair value adjustment on December 31, 2013, was an unrealized loss of $1,000 (from $10,000 to $9,000), the adjusted carrying amount on December 31, 2013, was $9,000.
The sale proceeds of $9,400 are compared with this adjusted amount:
```plaintext
Dr. Cash $9,400
Dr. Fair Value Adjustment—Trading Securities $1,000
Cr. Trading Securities $10,000
Cr. Realized Gain on Sale of Trading Securities $400
```
The balancing figure is a $400 gain, reflecting that the sale price exceeded the adjusted carrying amount.
Note: The 'Fair Value Adjustment—Trading Securities' account is debited to remove the unrealized loss initially recorded, and the sale is recorded.
Part (c): Adjusting Journal Entry on December 31, 2014
At December 31, 2014, the fair values of Clemson Corp. and Buffaloes Co. stocks are $19,100 and $20,500, respectively. The previous fair value adjustments need to be updated to reflect these new fair values.
- For Clemson Corp., the initial cost was $20,000, now with a fair value of $19,100, indicating an unrealized loss of $900.
- For Buffaloes Co., the initial cost was $20,000, now with a fair value of $20,500, indicating an unrealized gain of $500.
The total adjustment can be summarized as:
- Loss of $900 on Clemson.
- Gain of $500 on Buffaloes.
- The previous net unrealized loss was $1,400, which must be adjusted for these changes.
The journal entry to update the fair values is:
```plaintext
Dr. Unrealized Loss on Trading Securities $400
Cr. Fair Value Adjustment—Trading Securities $400
```
This adjusts the total valuation to reflect the current fair values, recognizing a net unrealized loss of $900 (Clemson) minus $500 (Buffaloes) = $400.
Conclusion
These journal entries ensure proper recording of fair value adjustments, sale proceeds, and gains or losses in accordance with GAAP for trading securities. Accurate accounting of securities investments is essential for transparent financial statements, providing stakeholders with relevant information about the company's market holdings and performance.
References
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