Question

Ticker Services began operations in 2015 and maintains long-term investments in available-for-sale securities. The year-end cost and fair values for its portfolio of these investments follow.

Portfolio of Available-for-Sale Securities
December 31, 2015 $302,680 $293,600
December 31, 2016 345,055 365,758
December 31, 2017 469,275 555,152
December 31, 2018 708,605 630,658

Prepare journal entries to record each year-end fair value adjustment for these securities.

Answer 1

The journal entries will be as follows:

31 December 2015

Debit: Unrealised loss - equity $9,080

Credit: Fair value (FV) adjustment AFS (Long Term investment - LT) $9,080

31 December 2016

Debit: FV adjustment - AFS (LT) $29,783

Credit: Unrealised loss - equity $9,080

Credit: Unrealised gain - equity $20,703

31 December 2017

Debit: FV adjustment - AFS (LT) $65,174

Credit: Unrealised gain - equity $65,174

31 December 2018

Debit: Unrealised gain - equity $85,877

Debit: Unrealised loss - equity $77,947

Credit: Fair value adjustment - AFS (LT) $163,824

Step-by-step explanation:

31 December 2015: Record FV of securities ($302,680 - $293,600) = $9,080 - FV loss

31 December 2016: Record FV of securities, FV adjustment - AFS (LT) = $345,055 - $365,758 = $20,703 net gain ($9,080 prior year loss + $20,703 current year gain)

31 December 2017: Record FV of securities: FV adjustment - AFS (LT) - $469,275 - $555,152 = $85,877 net gain (current year gain $85,877 - $20,703 prior gain)

31 December 2018: Record FV of securities: FV adjustment - AFS (LT) = $708,605 - $630,658 = $77,947 net loss ($85,877 prior year gain + $77,947 current year loss)