The investments of Macon, Inc., include a single investment: 8,000 shares of Pacific Wave, Inc. common stock purchased on August 10, 2012, for $8 per share including brokerage commission. These shares were classified as available-for-sale securities. As of the December 31, 2012, balance sheet date, the share price declined to $6 per share.

a. Journalize the entries to acquire the investment on August 10, and record the adjustment to fair value on December 31, 2012.

b. How is the unrealized gain or loss for available-for-sale investments disclosed on the financial statements?

2012

Aug.   10   Investments x Pacific Wave, Inc. Stock............... 64,000

                        Cash...........................................................................                64,000

                              8,000 shares × $8 per share.

Dec.    31   Unrealized Gain (Loss) on Available-for-

                  Sale Investments................................................... 16,000

                        Valuation Allowance for Available-for-Sale

                        Investments................................................................                16,000

                              To record decrease in fair value of

                              available-for-sale investments, 8,000 shares ×

                              ($8 per share – $6 per share).

b.         Unrealized Gain (Loss) on Available-for-Sale Investments is disclosed in the Stockholders’ Equity section of the balance sheet, separately from the retained earnings or paid-in capital accounts. On December 31, 2012 the account would show a debit balance of $16,000, that would be subtracted from stockholders’ equity.