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Basic Question 8 of 11
Culpepper Corporation owns available-for-sale securities with a cost of $90,000. Immediately before the year-end adjustment, the market adjustment account has a $5,000 debit balance. The securities have a current value of $85,000 at the end of 2011. Which one of the following is the correct adjustment to the market adjustment account?
B. $10,000 credit
C. $5,000 debit
A. $5,000 credit
B. $10,000 credit
C. $5,000 debit
User Contributed Comments 11
| User | Comment |
|---|---|
| kalps | Surely the double entry for market adjustment would be to credit AFS securities US$5000 ( to reduce its value) and debit the market adjustment account US$5000 |
| Gina | Beginning: securities allow. f/adjustm ---------- ---------------- 90K | | 5K Step 1: securities allow f/adjustm ---------- ---------------- 90K | | 5K | 5K Final: securities ----------- 85K | |
| Gina | ignore whatever I was trying to do before. CARRYOVER securities debit 90K market adjustment acct debit 5K YEAR-END ADJUSTMENT market adjustment acct credit 10K |
| bobert | The market adjustment account is a contra asset account. That should also help you when trying to figure out the debit ans credit situation. |
| SaeedAlam | Contra asset. That clears evthn up. Thanks Bobert |
| poomie83 | I think the entry would be DEbit unrealised loses 10k Credit market adj acc 10k Could someone please clarify |
| msoussan | I need help please. i do not get it. Thank you in advance |
| Ifi2703 | A contra asset ccount can never have a debit balance - it can only have a credit or zero balance. Therefore as the account previously had a 'debit' of $5000, we credit back the $5000 'debit' and also credit the account with an additional $5000 which we have lost in terms of the fair value of the securities. Thus in total we would credit the account with $10,000. |
| microeconomist | Thank you for explaining that Ifi2703. Pay no attn to my shorthand for next year's review. [~realized/\loss A-S] c) [credit/\to contra acct] .:creditVzero acct balance |
| Paul7059 | that's a good one - which LOS would that be? |
| Veer_02 | Could we say that maybe during the year, the securities went up by $5000, hence the debit balance at first. Inturn, we have to get the closing balance to be $85000 so we just credit $10000. |
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Learning Outcome Statements
explain the financial reporting and disclosures related to financial instruments
CFA® 2024 Level I Curriculum, Volume 2, Module 3.