Journ Co. purchased short-term investments in available-for-sale securities at a cost of $64,000 on November 25, 2017. At December 31, 2017, these securities had a fair value of $59,600. This is the first and only time the company has purchased such securities.

Prepare the December 31, 2017, year-end adjusting entry for the securities' portfolio and the April 6, 2018, entry when Journ sells one-half of these securities for $26,000.

On December 31, 2017:

Debit: Fair value adjustment - loss = $4,400

Credit: Securities available for sale = $4,400

On April 6, 2018

Debit: Cash account $26,000

Debit: Loss on sale of securities $3,800

Credit: Securities available for sale $29,800

Explanation:

On December 31, 2017:

Compare the cost/carrying value of the securities with its fair value on the reporting date.

Debit: Fair value adjustment - loss = $4,400

Credit: Securities available for sale = $4,400

Working of loss:

Cost = $64,000

Fair value of security = $59,600

Since, fair value of security is less, therefore, it is a loss:

Amount of loss = $64,000 - $59,600

Amount of loss = $4,400

On sale of securities: April 6, 2018

Comparing the sale of securities with its fair value at the date of sale: on April 6, 2018.

Since sold half of the securities only:

Debit: Cash account $26,000

Debit: Loss on sale of securities $3,800

Credit: Securities available for sale $29,800

Working:

Half of the investment fair value = $59,600/2 = $29,800

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