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Adjust FVA at Sale and Year-End

On November 1 of Year 1, Drucker Co. acquired the following investments in equity securities measured at FVNI.

Kelly Corporation	500	shares of common stock (no-par) at $60 per share
Keefe Corporation	300	shares preferred stock ($10 par) at $20 per share

On December 31, the companys year-end, the quoted market prices were as follows: Kelly Corporation common stock, $52, and Keefe Corporation preferred stock, $24. Following are the data for the following year (Year 2). Mar. 02: Dividends per share, declared and paid: Kelly Corp., $1, and Keefe Corp., $0.50. Oct. 01: Sold 100 shares of Keefe Corporation preferred stock at $25 per share. Dec. 31: Fair values: Kelly common, $46 per share, Keefe preferred, $26 per share.

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a. Prepare the entry for Drucker Company to record the purchase of the securities. b. Prepare any adjusting entry needed at December 31, Year 1. Note: If a journal entry isn't required for the transaction, select "N/A-Debit" and "N/A-Credit" as the account names and leave the Dr. and Cr. answers blank (zero). Credit Debit 36,000 0 Date Account Name Nov. 1, Year 1 Investment in Stock Cash To record purchase of securities. Dec. 31, Year 1 Unrealized Gain or Loss-Income 0 36,000 4,000 0 x 0 1,200 X To record adjusting entry. c. Indicate the items and amounts that should be reported on the Year 1 income statement of Drucker and its year-end balance sheet. Assume that the investments are classified as current. Note: Use a negative sign to indicate a loss. Year 1 Income Statement Other Revenues and Gains Net gain (loss) on equity securities $ (2,800) Balance Sheet, Dec. 31, Year 1 Assets Investment in equity securities $ 33,200 d. Prepare the entries required in Year 2 to record dividend revenue, the sale of stock, and the fair value adjustment. Update the Fair Value Adjustment account prior to recording any sale. Eliminate the associated Fair Value Adjustment account upon recording the sale of any investment. Date Account Name Dr. Mar. 2, Year 2 0 0 x 0 0 x To record dividends received. Oct. 1, Year 2 0 0 X 0 0 x To adjust investment to be sold to fair value. Oct. 1, Year 2 0 0 X 0 0 x 0 0 x To record sale of investment. Dec. 31, Year 2 0 0X 0 0 x To adjust the FVA account. e. Indicate items and amounts that should be reported on the Year 2 income statement and year-end balance sheet. Note: Use a negative sign to indicate a loss. Year 2 $ 0 X Income Statement Other Revenues and Gains Dividend revenue Net gain (loss) on equity securities Balance Sheet, Dec. 31, Year 2 Assets Investment in equity securities $ 0 X 0 x

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