Journal Entries

Question 1

What is the journal entry to record a gain on an available for sale security?

Answer 1

DR: Available for Sale Securities
CR: Cash

Question 2

What is the journal entry to record a gain or loss on an available for sale security?

Answer 2

Gain on AFS

DR: Securities on Fair Value Adjustment
CR: Unrealized Holding Gain – AFS (Reported in OCI)

Loss on AFS

DR: Unrealized Holding Loss– AFS (Reported in OCI)
CR: Securities on Fair Value Adjustment

Question 3

What is the journal entry to record an available for sale security that is sold?

Answer 3

DR: Cash
DR: Unrealized Holding Gain – AFS (Reported in OCI)
CR: Available for Sale Securities (at the original sale price)
CR: Unrealized Holding Loss– AFS (Reported in OCI)
CR: Securities on Fair Value Adjustment

Question 4

What is the journal entry to record an employee stock option at the date of offering (or grant date)?

Answer 4

DR: Compensation Expense XXX
CR: APIC (Share Options) XXX

Question 5

What is the journal entry to record the stock options once they are exercised?

Answer 5

DR: Cash
DR: APIC (Stock Options)
CR: Common Stock
CR: APIC (Common Stock)

Question 6

How is a employee stock option recorded when the options are measured at an intrinsic value?

Answer 6

The intrinsic value is used when the fair value of the option cannot be measured.

The intrinsic value is market price of an underlying share at the measurement date (usually 1st of the year) and on the final settlement date minus the exercise price of the option.

Question 7

How is treasury stock recorded when there are state laws relating to acquisition of treasury stock restrict the availability of retained earnings for declaration of dividends?

Answer 7

The cost of the treasury stock when purchased
(The cost of the treasury stock reissued)
Restricted Retained Earnings