Weston Company had the following long-term equity securities in its portfolio at December 31, Year 1. Weston had several long-term investment transactions during the next year. After analyzing the effects of each transaction, (1) determine the amount Weston should report on its December 31, Year 1 balance sheet for its long-term investments in available-for-sale securities, (2) determine the amount Weston should report on its December 31, Year 2 balance sheet for its long-term investments in equity securities, (3) prepare the necessary adjusting entry to record the fair value adjustment at December 31, Year 2.Equity Securities (LT)CostFairValue40,000 shares of Beach common stock$ 497,500$ 488,90015,000 shares of Danfield common stock410,200412,60018,000 shares of Cardinal common
stock399,600425,8???Jan. 22Sold 9,000 shares of Cardinal common stock for $203,000 less a brokerage fee of $850.Mar. 17Purchased 30,000 shares of Apex common stock for $995,000 plus a brokerage fee of $2,500. The shares represent a 30% ownership in Apex.Jun. 10Purchased 108,000 shares of Desert Springs common stock for $1,525,000 plus a brokerage fee of $4,200. The shares represent a 54% ownership in Desert Springs.Nov. 01Purchased 12,000 shares of Cliff common stock for $223,500 plus a brokerage fee of $450. The shares represent a 10% ownership.Dec. 31At December 31, Year 2, the fair values of its investments are: Beach, $502,500; Danfield, $411,800; Cardinal, $203,100; Apex, $1,113,250; Desert Springs, $1,576,000; Cliff, $239,050.
What will be an ideal response?
| Year 1: Equity Securities (LT) | Cost | Fair Value |
| 40,000 shares of Beach common stock | $ 497,500 | $ 488,900 |
| 15,000 shares of Danfield common stock | 410,200 | 412,600 |
| 18,000 shares of Cardinal common stock | 399,600 | 425,000 |
| Totals | $1,307,300 | $1,327,300 |
Year 2: Equity Securities (LT) | Cost | Fair Value |
| 40,000 shares of Beach common stock | $ 497,500 | $ 502,500 |
| 15,000 shares of Danfield common stock | 410,200 | 411,800 |
| 9,000 shares of Cardinal common stock | 199,800 | 203,100 |
| 12,000 shares of Cliff common stock | 223,950 | 239,050 |
| Totals | $1,331,450 | $1,356,450 |
| Year 2 | Fair value Adjustment-Equity (LT)…. | 5,000 | ? |
| ? | Unrealized Gain-Income……………………… | ? | 5,000 |
| ? | ? | ? | ? |
Year 2: $1,356,450 ? $1,331,450 = $25,000 net gain plus prior year gain $20,000 = $5,000
Apex would be reported using the equity method, and Desert Springs would be reported using consolidated financial statements.
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