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Equity Securities Entries and Disclosures

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Parrot Company has the following securities in its investment portfolio on December 31, 2010 (all securities were purchased in 2010):

3,000 shares of Ames Co. common stock which cost $58,500
10,000 shares of Master Ltd. common stock which cost $580,000
6,000 shares of Kong Company preferred stock which cost $255,000
The Securities Fair Value Adjustment account shows a credit of $10,100 at the end
of 2010.
In 2011, Parrot completed the following securities transactions.
1. On January 15, sold 3,000 shares of Ames's common stock at $22
per share less fees of $2,150
2. On April 17, purchased 1,000 shares of Cast's common stock at $33.50
per share plus fees of $1,980
On December 31, 2011, the market values per share of these securities were:
Master Ltd. $61.00
Kong Co. $40.00
Cast Co. $29.00
In addition, the accounting supervisor of Parrot told you that, even though all these securities have readily determinable fair values, Parrot will not actively trade these securities because the top management intends to hold them for more than one year.

(a) Prepare the entry for the security sale on January 15, 2011.

Gross selling price of 3,000 shares at $23 $66,000
Less: Commissions, taxes, and fees Amount
Text Title Formula
Text Title Amount
Gain on sale of stock Formula

Jan 15, 11 Cash Formula
Account Title Amount
Account Title Amount

(b) Prepare the journal entry to record the security purchase on April 17, 2011.

Total purchase price is:
Number of shares 1,000
Cost per share Amount
Text title Formula
Text title Amount
Text title Formula

Apr 17, 11 Available-for-Sale Securities Amount
Account Title Amount

"(c) Compute the unrealized gains or losses and prepare the adjusting entry for Parrot on
December 31, 2011."

Available-for-Sale Portfolioâ?"December 31, 2011
Securities Cost "Fair
Value" "Unrealized
Master Ltd. $580,000 Amount Formula
Kong Co. Amount Amount Formula
Cast Co. Amount Amount Formula
Total of portfolio Formula Formula Formula
Previous securities fair value adjustment balanceâ?"Cr. Amount
Securities fair value adjustmentâ?"Dr. Formula

Dec 31, 11 Securities Fair Value Adjustment (Available-for-Sale) Amount
Account Title Amount

(d) How should the unrealized gains or losses be reported on Parrot's balance sheet?

Enter text answer as appropriate.

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Solution Summary

The solution prepares Equity Securities Entries and Disclosures.