2014
Mar. 14. Purchased 5,000 shares of Wilkomm Inc. as a trading security at $40 per share plus a brokerage commission of $500.
Apr. 24. Purchased 1,800 shares of McMarsh Inc. as a trading security at $50 plus a brokerage commission of $198.
June 1. Sold 2,600 shares of Wilkomm Inc. for $38 per share less a $100 brokerage commission.
30. Received an annual dividend of $0.35 per share on Wilkomm Inc. stock.
Dec. 31. The portfolio of trading securities was adjusted to fair values of $38 and $49 per share for Wilkomm Inc. and McMarsh Inc., respectively.
2015
Apr. 4. Purchased 3,500 shares of Daley Inc. as a trading security at $30 per share plus a $175 brokerage commission.
June 28. Received an annual dividend of $0.40 per share on Wilkomm Inc. stock. sept. 9. Sold 700 shares of Daley Inc. for $32 per share less a $50 brokerage commission.
Dec. 31. The portfolio of trading securities had a cost of $270,578 and a fair value of $350,000, requiring a debit balance in Valuation Allowance for Trading Investments of $79,422 ($350,000 2 $270,578). Thus, the credit balance from December 31, 2014, is to be adjusted to the new balance.
Instructions
1. Journalize the entries to record these transactions.
2. Prepare the investment-related current asset balance sheet presentation for Scofield Financial Co. on December 31, 2015.
3. How are unrealized gains or losses on trading investments presented in the financial statements of Scofield Financial Co.?
Answer:
1.
2014
Mar. 14 Investments—Wilkomm Inc.* 200,500
Cash 200,500
*(5,000 shares × $40 per share) + $500
Apr. 24 Investments—McMarsh Inc.* 90,198
Cash 90,198
*(1,800 shares × $50 per share) + $198
June 1 Cash* 98,700
Loss on Sale of Investments 5,560
Investments—Wilkomm Inc.** 104,260
*(2,600 shares × $38.00 per share) – $100
**2,600 shares × ($200,500 ÷ 5,000 shares)
30 Cash* 840
Dividend Revenue 840
*(5,000 shares – 2,600 shares) × $0.35
Dec. 31 Unrealized Loss on Trading Investments 7,038
Valuation Allowance for Trading
Investments* 7,038
* $179,400 – $186,438, in table below
Number Cost
of per Fair Value Fair
Shares Share per Share Cost Value
Wilkomm Inc. ………………… 2,400 $40.101 $38 $ 96,240 $ 91,200
McMarsh Inc. ………………… 1,800 $50.112 $49 90,198 88,200
Total………………………… $186,438 $179,400
1 $200,500 ÷ 5,000 shares = $40.10 per share
2 $90,198 ÷ 1,800 shares = $50.11 per share
2015
Apr. 4 Investments—Daley Inc.* 105,175
Cash 105,175
*(3,500 shares × $30 per share) + $175
June 28 Cash* 960
Dividend Revenue 960
*2,400 shares × $0.40 per share
Sept. 9 Cash* 22,350
Gain on Sale of Investments 1,315
Investments—Daley Inc.** 21,035
*(700 shares × $32 per share) – $50
**700 shares × ($105,175 ÷ 3,500 shares)
Dec. 31 Valuation Allowance for Trading Investments* 86,460
Unrealized Ga
2.
SCOFIELD FINANCIAL CO.
Balance Sheet (selected items)
December 31, 2015
Current assets:
Trading investments (at cost) $270,578
Plus valuation allowance for trading investments 79,422
Trading investments (at fair value) $350,000
3. Unrealized gains or losses are reported on the income statement, often as
“Other Income (Losses).” For 2014, Scofield Financial Co. would have
reported an unrealized loss of $7,038 as “Other Losses.” For 2015, Scofield
Financial Co. would have reported an unrealized gain of $86,460 as “Other
Income.” If unrealized gains and losses were significant for Scofield Financial,
then they would be separately disclosed on the income statement.