Question

Vaughn Company has the following securities in its investment portfolio on December 31, 2020 (all securities were purchased in 2020): (1) 3,100 shares of Anderson Co. common stock which cost $55,800, (2) 10,200 shares of Munter Ltd. common stock which cost $581,400, and (3) 5,600 shares of King Company preferred stock which cost $235,200. The Fair Value Adjustment account shows a credit of $10,900 at the end of 2020.

In 2021, Vaughn completed the following securities transactions.
1. On January 15, sold 2,900 shares of Anderson’s common stock at $21 per share less fees of $2,020.
2. On April 17, purchased 1,100 shares of Castle’s common stock at $33 per share plus fees of $1,860.
On December 31, 2021, the market prices per share of these securities were Munter $61, King $40, and Castle $22. In addition, the accounting supervisor of Vaughn told you that, even though all these securities have readily determinable fair values, Vaughn will not actively trade these securities because the top management intends to hold them for more than one year.
a. Prepare the entry for the security sale on January 15, 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
b. Prepare the journal entry to record the security purchase on April 17, 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
c. Compute the unrealized gains or losses.
d. Prepare the adjusting entry for Vaughn on December 31, 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Answer 1

Anderson Co. 3,100 shares at $18 per share

Munter Ltd. 10,200 shares at $57 per share

King Co. 5,600 preferred stock at $42 per stock

a. Prepare the entry for the security sale on January 15, 2021.

• Dr Cash 58,880
• Cr Investment in Anderson Co. stock AFS 52,200
• Cr Realized gain on stock AFS 6,680

b. Prepare the journal entry to record the security purchase on April 17, 2021.

• Dr Investment in Castle's stock AFS 38,160
• Cr Cash 38,160

c. Compute the unrealized gains or losses.

• unrealized gain = $40,800 (gain in Munter) - $11,200 (loss in King) - $13,960 (loss in Castle) = $15,640

d. Prepare the adjusting entry for Vaughn on December 31, 2021.

• Dr Investment in Munter's stock 40,800
• Cr Investment in King's stock 11,200
• Cr Investment in Castle's stock 13,960
• Cr Unrealized gain - other comprehensive income 15,640