During 2017 the Lung Association received a contribution of marketable securities that were to be placed in a permanent endowment fund. Neither donor stipulations nor applicable state law requires that capital gains or increases in value be added to the endowment principal. The income from the securities was to be restricted to research in pulmonary diseases. The following schedule indicates the value of the securities as of the date of receipt (labeled "cost"), the fair value at December 31, 2017, and the unrealized gains and losses of the year.
Endowment Portfolio as of December 31, 2017 (in thousands)
Cost Fair Value Unrealized Gain (Loss)
Northwest Industries $260 $275 $15
Campbell Corp. 317 304 (13)
St. Regis, Inc. 141 171 30
$718 $750 $32
1. Prepare a journal entry to record the unrealized net gain during the year. Be sure to indicate the type of fund+(unrestricted, temporarily restricted, or permanently restricted) in which the entry would be made. Assuming no other transactions and no other assets in the relevant funds, show how the investments would be reported on the hospital's year-end 2017 statement of financial position.
2. During 2018, the hospital sold Northwest Industries for $280. Prepare appropriate journal entries to record the sale. Credit the gain to the same account in which you credited the unrealized appreciation of 2017.
3. As of December 31, 2018, the market value of Campbell Corp. had increased to $320; that of St. Regis, Inc., to $180. Prepare a journal entry to record the unrealized gain during the year. Show how the association would report the investment portfolio on its December 31, 2018, statement of financial position. You may combine the cash and securities of each type of fund into a single account.
During 2017 the Lung Association received a contribution of marketable securities that were to be placed in a permanent endowment fund. Neither donor stipulations nor applicable state law requires that capital gains or increases in value be added to the endowment principal. The income from the securities was to be restricted to research in pulmonary diseases. The following schedule indicates the value of the securities as of the date of receipt (labeled "cost"), the fair value at December 31, 2017, and the unrealized gains and losses of the year.
Endowment Portfolio as of December 31, 2017 (in thousands)
Cost Fair Value Unrealized Gain (Loss)
Northwest Industries $260 $275 $15
Campbell Corp. 317 304 (13)
St. Regis, Inc. 141 171 30
$718 $750 $32
1. Prepare a journal entry to record the unrealized net gain during the year. Be sure to indicate the type of fund+(unrestricted, temporarily restricted, or permanently restricted) in which the entry would be made. Assuming no other transactions and no other assets in the relevant funds, show how the investments would be reported on the hospital's year-end 2017 statement of financial position.
2. During 2018, the hospital sold Northwest Industries for $280. Prepare appropriate journal entries to record the sale. Credit the gain to the same account in which you credited the unrealized appreciation of 2017.
3. As of December 31, 2018, the market value of Campbell Corp. had increased to $320; that of St. Regis, Inc., to $180. Prepare a journal entry to record the unrealized gain during the year. Show how the association would report the investment portfolio on its December 31, 2018, statement of financial position. You may combine the cash and securities of each type of fund into a single account.
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Related questions
Accounting for Investments
In 2013, Western Community Hospital, a private facility, receives donated securities with a fair market value and face value of $400,000. The donor specifies that the securities be held as a permanent endowment, and investment income earned on these securities can be used for any purpose. The securities have a fair market value of $360,000 at the end of 2013, and $450,000 at the end of 2014. Dividend income earned on the securities in each of the two years is $10,000
Required
a. Prepare the journal entries to record the above events in 2013 and 2014. Indicate the balance of each account and its placement in the financial statements.
2013 Journal Entries
General Journal | ||
---|---|---|
Description | Debit | Credit |
AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
To record the contribution. | ||
AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
To record the investment income. | ||
AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
To record the change in value of securities. |
Use a negative sign with unrealized gain (loss) answer to indicate an unrealized loss.
Account balances at the end of 2013 | ||
---|---|---|
Investment in securities | $Answer | AnswerAsset in statement of financial positionIncrease in permanently restricted net assets on statement of activitiesIncrease in unrestricted net assets on statement of activitiesIncrease in permanently restricted net assets on statement of activitiesDecrease in permanently restricted net assets on statement of activitiesDecrease in unrestricted net assets on statement of activities |
Contributions | $Answer | AnswerAsset in statement of financial positionIncrease in permanently restricted net assets on statement of activitiesIncrease in unrestricted net assets on statement of activitiesIncrease in permanently restricted net assets on statement of activitiesDecrease in permanently restricted net assets on statement of activitiesDecrease in unrestricted net assets on statement of activities |
Investment income | $Answer | AnswerAsset in statement of financial positionIncrease in permanently restricted net assets on statement of activitiesIncrease in unrestricted net assets on statement of activitiesIncrease in permanently restricted net assets on statement of activitiesDecrease in permanently restricted net assets on statement of activitiesDecrease in unrestricted net assets on statement of activities |
Unrealized gain (loss) | $Answer | AnswerAsset in statement of financial positionIncrease in permanently restricted net assets on statement of activitiesIncrease in unrestricted net assets on statement of activitiesIncrease in permanently restricted net assets on statement of activitiesDecrease in permanently restricted net assets on statement of activitiesDecrease in unrestricted net assets on statement of activities |
2014 Journal Entries
General Journal | ||
---|---|---|
Description | Debit | Credit |
AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
To record the investment income. | ||
AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
To record the change in value of the securities. |
Use a negative sign with unrealized gain (loss) answer to indicate an unrealized loss.
Account balances at the end of 2014 | ||
---|---|---|
Investment in securities | $Answer | AnswerAsset in statement of financial positionIncrease in permanently restricted net assets on statement of activitiesIncrease in unrestricted net assets on statement of activitiesIncrease in permanently restricted net assets on statement of activitiesDecrease in permanently restricted net assets on statement of activitiesDecrease in unrestricted net assets on statement of activities |
Investment income | $Answer | AnswerAsset in statement of financial positionIncrease in permanently restricted net assets on statement of activitiesIncrease in unrestricted net assets on statement of activitiesIncrease in permanently restricted net assets on statement of activitiesDecrease in permanently restricted net assets on statement of activitiesDecrease in unrestricted net assets on statement of activities |
Unrealized gain (loss) | $Answer | AnswerAsset in statement of financial positionIncrease in permanently restricted net assets on statement of activitiesIncrease in unrestricted net assets on statement of activitiesIncrease in permanently restricted net assets on statement of activitiesDecrease in permanently restricted net assets on statement of activitiesDecrease in unrestricted net assets on statement of activities |
Required
b. Assume the same facts as above, except the donation was $400,000 in cash, and the hospital invested the $400,000 in debt securities. How do the entries in a. change?
General Journal | ||
---|---|---|
Description | Debit | Credit |
2013 entries: | ||
AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
To record the contribution. | ||
AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
To record the investment in securities. | ||
AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
To record the change in value of securities. | ||
2014 entries: | ||
AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
To record the change in value of the securities. |