2014
Feb. 14. Purchased 4,800 shares of Apollo Inc. as a trading security at $26 per share plus a brokerage commission of $192.
Apr. 1. Purchased 2,300 shares of Ares Inc. as a trading security at $19 per share plus a brokerage commission of $92.
June 1. Sold 600 shares of Apollo Inc. for $32 per share less a $100 brokerage commission.
27. Received an annual dividend of $0.20 per share on Apollo Inc. stock.
Dec. 31. The portfolio of trading securities was adjusted to fair values of $33 and $18.50 per share for Apollo Inc. and Ares Inc., respectively.
2015
Mar. 14. Purchased 1,200 shares of Athena Inc. as a trading security at $65 per share plus a $120 brokerage commission.
June 26. Received an annual dividend of $0.21 per share on Apollo Inc. stock.
July 30. Sold 480 shares of Athena Inc. for $60 per share less a $50 brokerage commission.
Dec. 31. The portfolio of trading securities had a cost of $200,032 and a fair value of $188,000, requiring a credit balance in Valuation Allowance for Trading Investments of $12,032 ($200,032 2 $188,000). Thus, the debit 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 Zeus Investments Inc. on December 31, 2015.
3. How are unrealized gains or losses on trading investments presented in the financial statements of Zeus Investments Inc.?
Answer:
1.
2014
Feb. 14 Investments—Apollo Inc.* 124,992
Cash 124,992
*(4,800 shares × $26 per share) + $192
Apr. 1 Investments—Ares Inc.* 43,792
Cash 43,792
*(2,300 shares × $19 per share) + $92
June 1 Cash* 19,100
Gain on Sale of Investments 3,476
Investments—Apollo Inc.** 15,624
*(600 shares × $32 per share) – $100
**600 shares × ($124,992 ÷ 4,800 shares)
27 Cash* 840
Dividend Revenue 840
*(4,800 shares – 600 shares) × $0.20
Dec. 31 Valuation Allowance for Trading Investments* 27,990
Unrealized Gain on Trading Investments 27,990
* $181,150 – $153,160, in table below
Number
of
Shares
Cost
per
Share
Fair Value Fair
per Share Cost Value
Apollo Inc..................................... 4,200 $26.041 $33.00 $109,368 $138,600
Ares Co. ....................................... 2,300 $19.042 $18.50 43,792 42,550
Total.............................................. $153,160 $181,150
1 $124,992 ÷ 4,800 shares = $26.04 per share
2 $43,792 ÷ 2,300 shares = $19.04 per share
2015
Mar. 14 Investments—Athena Inc.* 78,120
Cash 78,120
*(1,200 shares × $65 per share) + $120
June 26 Cash* 882
Dividend Revenue 882
*4,200 shares × $0.21 per share
July 30 Cash* 28,750
Loss on Sale of Investments 2,498
Investments—Athena Inc.** 31,248
*(480 shares × $60 per share) – $50
**480 shares × ($78,120 ÷ 1,200 shares)
Dec. 31 Unrealized Loss on Trading Investments* 40,022
Valuation Allowance for Trading Investments* 40,022
*$27,990 + $12,032
2.
ZEUS INVESTMENTS INC.
Balance Sheet (selected items)
December 31, 2015
Current assets:
Trading investments (at cost)* $200,032
Less valuation allowance for trading investments 12,032
Trading investments (at fair value) $188,000
*$153,160 (from Dec. 31, 2014) + $78,120 – $31,248
3. Unrealized gains or losses are reported in the income statement, often
as “Other Income (Losses).” For 2014, Zeus Investments Inc. would have
reported an unrealized gain of $27,990 as “Other Income.” For 2015, Zeus
Investments Inc. would have reported an unrealized loss of $40,022 as
“Other Losses.” If unrealized gains and losses were significant for Zeus
Investments, then they would be separately disclosed on the income
statement.