Answered

Portfolio of Available-for-Sale Securities

\begin{tabular}{cr}
\hline
\textbf{Date} & \textbf{Cost} & \textbf{Fair Value} \\
\hline
December 31, Year 1 & [tex]$\$[/tex] 13,000[tex]$ & $[/tex]\[tex]$ 15,000$[/tex] \\
December 31, Year 2 & 20,000 & 25,000 \\
December 31, Year 3 & 23,000 & 29,000 \\
December 31, Year 4 & 16,500 & 19,000 \\
\hline
\end{tabular}

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



Answer :

GinnyAnswer
Let's prepare the journal entries to record each year-end fair value adjustment for the available-for-sale securities portfolio:

### Year-End Adjustment Summary:
We have the following fair value adjustments for each year:
- Year 1: [tex]$2,000 - Year 2: $[/tex]5,000
- Year 3: [tex]$6,000 - Year 4: $[/tex]2,500

These adjustments reflect increases in the fair value of the securities relative to their cost. Therefore, we should record unrealized gains (since the fair values are higher than the costs), and these should be recorded in a valuation allowance account for available-for-sale securities.

### Journal Entry Adjustments by Year:
1. Year 1:
- Date: December 31, Year 1
- Debit: Valuation Allowance for Available-for-Sale Securities \[tex]$2,000 - Credit: Unrealized Gain on Available-for-Sale Securities \$[/tex]2,000

The journal entry will look like:
```
Dr. Valuation Allowance for Available-for-Sale Securities [tex]$2,000 Cr. Unrealized Gain on Available-for-Sale Securities $[/tex]2,000
```

2. Year 2:
- Date: December 31, Year 2
- Debit: Valuation Allowance for Available-for-Sale Securities \[tex]$5,000 - Credit: Unrealized Gain on Available-for-Sale Securities \$[/tex]5,000

The journal entry will look like:
```
Dr. Valuation Allowance for Available-for-Sale Securities [tex]$5,000 Cr. Unrealized Gain on Available-for-Sale Securities $[/tex]5,000
```

3. Year 3:
- Date: December 31, Year 3
- Debit: Valuation Allowance for Available-for-Sale Securities \[tex]$6,000 - Credit: Unrealized Gain on Available-for-Sale Securities \$[/tex]6,000

The journal entry will look like:
```
Dr. Valuation Allowance for Available-for-Sale Securities [tex]$6,000 Cr. Unrealized Gain on Available-for-Sale Securities $[/tex]6,000
```

4. Year 4:
- Date: December 31, Year 4
- Debit: Valuation Allowance for Available-for-Sale Securities \[tex]$2,500 - Credit: Unrealized Gain on Available-for-Sale Securities \$[/tex]2,500

The journal entry will look like:
```
Dr. Valuation Allowance for Available-for-Sale Securities [tex]$2,500 Cr. Unrealized Gain on Available-for-Sale Securities $[/tex]2,500
```

With these journal entries, the values for the adjustments to fair value for the available-for-sale securities at year-end for each respective year are accurately recorded.

### Summary of Journal Entries:
Year 1:
```
Dr. Valuation Allowance for Available-for-Sale Securities [tex]$2,000 Cr. Unrealized Gain on Available-for-Sale Securities $[/tex]2,000
```

Year 2:
```
Dr. Valuation Allowance for Available-for-Sale Securities [tex]$5,000 Cr. Unrealized Gain on Available-for-Sale Securities $[/tex]5,000
```

Year 3:
```
Dr. Valuation Allowance for Available-for-Sale Securities [tex]$6,000 Cr. Unrealized Gain on Available-for-Sale Securities $[/tex]6,000
```

Year 4:
```
Dr. Valuation Allowance for Available-for-Sale Securities [tex]$2,500 Cr. Unrealized Gain on Available-for-Sale Securities $[/tex]2,500
```

These comprehensive journal entries reflect the year-end fair value adjustments accurately.