EXERCISE 17-6 (10–15 minutes)

(a) Fair Value Adjustment ($70,000 − $65,000) ............ 5,000

Unrealized Holding Gain or Loss—Income ..... 5,000

(b) The Unrealized Holding Gain or Loss—Income account is reported

in the income statement under Other Revenues and Gains. The Fair
Value Adjustment account is added to the cost of the Equity
Investment account to arrive at fair value.
LO: 2, Bloom: AP, Difficulty: Simple, Time: 10-15, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC: Problem
Solving

EXERCISE 17-7 (10–15 minutes)

(a) December 31, 2017
Unrealized Holding Gain or Loss—Income ............ 1,400
Fair Value Adjustment .....................................
1,400
(b) During 2018
Cash .......................................................................... 9,400
Loss on Sale of Investments ................................... 600
Equity Investments
................................................................ 10,000

(c) December 31, 2018

Unrealized
Securities Cost Fair Value Gain (Loss)
Clemson Corp. stock $20,000 $19,100 ($ (900)
Buffaloes Co. stock 20,000 20,500 ( 500)
Total of portfolio $40,000 $39,600 ( (400)
Previous fair value ( (1,400)
adjustment balance—Cr.
Fair value adjustment—Dr. ($1,000)

Fair Value Adjustment ............................................... 1,000

Unrealized Holding Gain or Loss—Income ........ 1,000
LO: 2, Bloom: AP, Difficulty: Moderate, Time: 10-15, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC:
Problem Solving
EXERCISE 17-8 (5–10 minutes)

The unrealized gains and losses resulting from changes in the fair
value of equity securities are recorded in an Unrealized Holding Gain
or Loss-Income account that is reported as part of net income.
Therefore, the following adjusting entry should be made at the year-
end:

Unrealized Holding Gain or Loss—Income .......................... 8,000

Fair Value Adjustment ($73,000 –
$65,000) .................................................................................. 8,0
00

Unrealized Holding Gain or Loss—Income is reported in the “Other

expenses and losses” section of the income statement. The Fair Value
Adjustment account is a valuation account to the related equity
investment account.
LO: 2, Bloom: AP, Difficulty: Simple, Time: 5-10, AACSB: Analytic, Communication, AICPA BB: Critical Thinking, AICPA FC: Reporting,
AICPA PC: Communication, Problem Solving