90.2K

Verified Solution

Link Copied!

Last Unguaranteed Financial Inc. purchased the following trading securities during Year 1, its first year of operations:

Name	Number of Shares	Cost
Arden Enterprises Inc.	4,530	$135,900
French Broad Industries Inc.	2,600	62,400
Pisgah Construction Inc.	1,620	103,680
Total		$301,980

The market price per share for the trading security portfolio on December 31, Year 1, was as follows:

	Market Price
	per Share,
	Dec. 31, Year 1
Arden Enterprises Inc.	$35
French Broad Industries Inc.	27
Pisgah Construction Inc.	60

Required:

A.	Provide the journal entry to adjust the trading security portfolio to fair value on December 31, Year 1. Refer to the Chart of Accounts for exact wording of account titles.
B.	Assume the market prices of the portfolio were the same on December 31, Year 2, as they were on December 31, Year 1. What would be the journal entry to adjust the portfolio to fair value?

CHART OF ACCOUNTSLast Unguaranteed Financial Inc.General Ledger

	ASSETS
110	Cash
111	Petty Cash
120	Accounts Receivable
121	Allowance for Doubtful Accounts
131	Notes Receivable
132	Interest Receivable
141	Merchandise Inventory
145	Office Supplies
146	Store Supplies
151	Prepaid Insurance
161	Trading Investments
162	Available-for-Sale Investments
165	Valuation Allowance for Trading Investments
166	Valuation Allowance for Available-for-Sale Investments
181	Land
191	Store Equipment
192	Accumulated Depreciation-Store Equipment
193	Office Equipment
194	Accumulated Depreciation-Office Equipment

	LIABILITIES
210	Accounts Payable
221	Notes Payable
231	Interest Payable
241	Salaries Payable
251	Sales Tax Payable

	EQUITY
311	Common Stock
312	Paid-In Capital in Excess of Par-Common Stock
321	Preferred Stock
322	Paid-In Capital in Excess of Par-Preferred Stock
331	Treasury Stock
332	Paid-In Capital from Sale of Treasury Stock
340	Retained Earnings
350	Unrealized Gain (Loss) on Available-for-Sale Investments
351	Cash Dividends
352	Stock Dividends
390	Income Summary

	REVENUE
410	Sales
611	Interest Revenue
612	Dividend Revenue
631	Gain on Sale of Investments
641	Unrealized Gain on Trading Investments

	EXPENSES
511	Cost of Merchandise Sold
512	Bad Debt Expense
515	Credit Card Expense
516	Cash Short and Over
520	Salaries Expense
531	Advertising Expense
532	Delivery Expense
533	Repairs Expense
534	Selling Expenses
535	Rent Expense
536	Insurance Expense
537	Office Supplies Expense
538	Store Supplies Expense
561	Depreciation Expense-Store Equipment
562	Depreciation Expense-Office Equipment
590	Miscellaneous Expense
710	Interest Expense
731	Loss on Sale of Investments
741	Unrealized Loss on Trading Investments

A. Provide the journal entry to adjust the trading security portfolio to fair value on December 31, Year 1. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 10

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2

B. Assume the market prices of the portfolio were the same on December 31, Year 2, as they were on December 31, Year 1. What would be the journal entry to adjust the portfolio to fair value?

1- Dr Unrealized Gain on Trading Investments Cr.Valuation Allowance for Trading Investments

2-Dr Unrealized Loss on Trading Investments Cr.Valuation Allowance for Trading Investments

3-No entry

4- Dr Valuation Allowance for Trading Investments Cr. Unrealized Gain on Trading Investments

Answer & Explanation Solved by verified expert

See Answer