On September 15,Nolan Company purchases 2,000 shares of Francis Company common stock for $30,000,including $500 of commissions and brokerage fees.This is Nolan's first and only purchase of this type of investment.On November 1,Nolan sold 500 shares of the Francis Company stock for $8,200.On December 31,the fair value of Francis Company common stock was $16 per share.The adjusting entry to record the fair value of the investments on December 31 is:
A)Debit Unrealized Gain - Income,$1,500; Credit Fair Value Adjustment - Stock,$1,500.
B)Debit Fair Value Adjustment - Stock,$1,500; Credit Unrealized Gain - Income,$1,500.
C)Debit Unrealized Gain - Equity,$1,500; Credit Fair Value Adjustment - Stock,$1,500.
D)Debit Fair Value Adjustment - Stock,$2,000; Credit Unrealized Gain - Income,$2,000.
E)No adjusting entry required.

Question

Quizplus · Accepted Answer

The fair value adjustment for the Francis Company stock is $1,500 (500 shares x $3 difference between cost and fair value per share). The account to be debited is Fair Value Adjustment - Stock, which is a balance sheet account. The account to be credited is Unrealized Gain - Income, which is an equity account. Therefore, the adjusting entry is: Debit Fair Value Adjustment - Stock,$1,500; Credit Unrealized Gain - Income,$1,500.

On September 15,Nolan Company Purchases 2,000 Shares of Francis Company