Required:

1. What is the appropriate reporting category for this stock? Why?

2. Prepare the adjusting entry on December 31, 2006.

3. Prepare the adjusting entry on December 31, 2007.

Answer:

(1.)	This investment should be accounted for as Available for Sale since it will be held for an unspecified period of time and doesn't fit any other category.
(2.)	12/31/03	Investment in AZQ	10,000
		Unrealized holding gain on investments		10,000
(3.)	12/31/04	Investment in AZQ	5,000
		Unrealized holding gain on investments		5,000

Learning Objective: 2 Level of Learning: 3

116. During 2006, Largent Enterprises purchased stock as follows:

May 17, Purchased 1,000 shares of Nugent common stock for $80 per share.

July 12, Purchased 400 shares of Alfredo common stock at $60 per share, plus a $600 brokerage commission.

At December 31, 2006, the market values of the securities were as follows:

Security	Market Value per Share
Nugent	$72
Alfredo	$64

Required:

1. Prepare the journal entries to record the acquisition of the two investments.

2. Prepare any necessary adjusting entries assuming the stocks are both classified as available for sale securities.

Answer:

(1.)	May 17	Investment in Nugent	80,000
		Cash		80,000
	Jul. 12	Investment in Alfredo	24,600
		Cash		24,600
(2.)	Dec. 31	Unrealized holding loss on investments	8,000
		Fair value adjustment in Nugent		8,000
	Dec. 31	Fair value adjustment in Alfredo	1,000
		Unrealized holding gain on investments		1,000

($64 x 400) – $24,600 = $1,000

Learning Objective: 2 Level of Learning: 3