On February 18 2016 Union Corporation purchased 10000 shares

On February 18, 2016, Union Corporation purchased 10,000 shares of IBM common stock as a long-term investment at $60 per share. Orn December 31, 2016, and December 31, 2017, the market value of IBM stock is $58 and $61 per share, respectively. Required 1. What is the appropriate reporting category for this investment? 2. Prepare the adjusting entry for December 31, 2016 3. Prepare the adjusting entry for December 31, 2017

Solution

1 The investment is to be classified under Available for Sale Security as 10,000 shares do not constitute significant influence 2 Net realized holding gains and losses – OCI 20000 =10000*(60-58)                   Fair value adjustment 20000 3 Fair value adjustment 30000 =10000*(61-58)               Net realized holding gains and losses – OCI 30000