Question

The following information describes the investment portfolio of Stevens, Incorporated. All of the securities were purchased on 3/1/19, and are held with the intention of appreciation. Tlet, Loxat, and Barnes each have more than 1,000,000 common shares issued and outstanding throughout 2019 and 2020. No dividends have been received by Stevens, Inc. on these investments. On 5/1/2020, when Loxat was trading at $81 per share, Stevens Inc. sold 1000 shares.

Security Cost at 12/31/19 / share FMV at 12/31/2019 /share FMV at 12/31/2020/share
Tlet Inc (1000 sh) $23,000 28,500 37,000
Loxat Co (2000 sh) 100,000 142,500 96,500
Barnes Inc (2000 sh) 46,000 39,000 42,000
Total $169,000 210,000 175,500

Required:
a. Prepare the Necessary Journal Entries for 2019 and 2020
b. Complete a fair value adjustment

Answer 1

a. 3/1/2019

Dr Investment in Tlet Inc $23,000

Dr Investment in Loxat Co $100,000

Dr Investment in Barnes Inc $46,000

Cr Cash $169,000

12/31/2019

Dr Fair value adjustment $41,000

Cr Unrealised holding gain or loss,Net $41,000

5/1/2020

Dr Cash $81,000

Cr Investment in Loxat Co $50,000

Cr Recognized gain on sale $31,000

12)31/2020

Dr Fair value adjustment $15,500

Cr Unrealised holding gain or loss,Net $15,500

b. Fair value adjustment $41,000

Fair value adjustment $15,500

Step-by-step explanation:

a. Preparation of the Necessary Journal Entries for 2019 and 2020

3/1/2019

Dr Investment in Tlet Inc $23,000

Dr Investment in Loxat Co $100,000

Dr Investment in Barnes Inc $46,000

Cr Cash $169,000

12/31/2019

Dr Fair value adjustment $41,000

Cr Unrealised holding gain or loss,Net $41,000

($169,000-$210,000)

5/1/2020

Dr Cash $81,000

( $81 per share*1,000 shares)

Cr Investment in Loxat Co $50,000

[($100,000/2,000 shares=50 shares)

[($50*1,000 =$50,000)

Cr Recognized gain on sale $31,000

($81,000-$50,000)

12)31/2020

Dr Fair value adjustment $15,500

Cr Unrealised holding gain or loss,Net $15,500

[($119,000-$175,500)-$41,000]

($23,000+$50,000+$46,000=$119,000)

b.Calculation to Complete the fair value adjustment

A. Fair value adjustment =$169,000-$210,000

Fair value adjustment $41,000

B. Fair value adjustment=[($119,000-$175,500)-$41,000]

Fair value adjustment=$56,500-$41,000

Fair value adjustment= $15,500

Therefore the Fair value adjustment will be:

A. $41,000

B. $15,500