Question

Buffalo Co. had purchased 160 shares of Washington Co. for $39 each this year (Oregon Co. does not have significant influence). Buffalo Co. sold 80 shares of Washington Co. stock for $45 each. At year-end, the price per share of the Washington Co. stock has dropped to $35.

Required:
Prepare the journal entries for these transactions and any year-end adjustments.

Answer 1

equity securities Washinton Co 6,240 debit

cash 6,240 credit

--to record the purchase--

cash 3,600 debit

gain on equity securities 480 credit

equity securities Washinton Co 3,120 credit

--to record sale--

unrealized loss 320 debit

equity securities Washinton Co 320 credit

--to record year-end adjustment--

Step-by-step explanation:

purchase: 160 shares x $39 each = $6,240

sale:

sold 80 shares x $45 each = 3,600

book value 80 shares x $39 = 3,120

gain on sale 480

year end adjustment:

book value 80 shares as $39 3,120

market value at year-end $35 2,800

unrealized loss 320

It is unrealized as we didn't sale the shares their price could change again therefore it is not realized.