Presented below is information related to the purchases of common stock by Nash
ID: 2548182 • Letter: P
Question
Presented below is information related to the purchases of common stock by Nash Company during 2017.
Cost
(at purchase date)
Fair Value
(at December 31)
In addition, assume that the investment in the Woods Inc. stock was sold during 2018 for $206,000. At December 31, 2018, the following information relates to its two remaining investments of common stock.
Cost
(at purchase date)
Fair Value
(at December 31)
Net income before any security gains and losses for 2018 was $922,000.
(a) Compute the amount of net income or net loss that Nash should report for 2018, taking into consideration Nash’s security transactions for 2018, assuming Nash did not select the fair value option for investments in the Lee and Woods corporations.
(b) Prepare the journal entry to record unrealized gain or loss related to the investment in Arroyo Company stock at December 31, 2018. (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.)
Date
Account Titles and Explanation
Debit
Credit
Cost
(at purchase date)
Fair Value
(at December 31)
Explanation / Answer
Answer 1)
Net income before any security gains and losses $922,000
Add : Profit from sale of Wood Incs (206000-191000) $15000
Add : Gain in Fair Valuation of investment in Arroyo $56000
(142000-86000)
Total profit for 2018 993000
2) Stock of Arroyo company dr 56000
to Change in Fair Value 56000
(Entry for change in fair value of share passed)
Working : Amont is calculated as follows:
Purchases cost in 2017 107000
Fair Value on 31st Dec 17 86000
therefor loss booked in 2017 (107000-86000) 21000
now on 31st Dec 2018 fair value is 142000 so total profit due to change in fair value is (142000-86000) 56000.