Gray, Inc. management occasionally invests idle cash in stocks that are not inte
ID: 2419488 • Letter: G
Question
Gray, Inc. management occasionally invests idle cash in stocks that are not intended to be held long term. Management treats these investments as trading securities. 1/5/2015 Purchased 4,000 shares of Gold Corporation common stock, which constitutes less than 10% of the outstanding shares of the company for $43.00 per share cash plus a total broker commission of $150. 6/15/2015 Received a cash dividend of $1.75 per share. 12/15/2015 Received a cash dividend of $1.80 per share. 12/31/2015 The market value of the stock is $50 per share as of year end, and a commission of $150 would apply to sell the shares. 1/22/2016 Sold 2,000 shares of Gold Corporation common stock for $51 per share minus $120 commission. Instructions: Prepare Journal entries for the above transactions. Solutions: Date Account Debit Credit 1/5/2015 Trading Securities 172,150 Cash 172,150 $43.04 cost per share with commission. (4,000 x $43) + $150 You would need this information if you sold less than all shares later. Cost per share = $172,150 / 4,000 = $43.04 7/15/2015 Cash 7,000 Dividend Revenue 7,000 4,000 sh x $1.75 12/15/2015 Cash 7,200 Dividend Revenue 7,200 4,000 sh x $1.80 12/31/2015 Trading Securities 27,700 $49.96 updated carrying value per share. Unrealized Gain on Trading Securities 27,700 [(4,000 x $50) - $150] = $199,850 - $172,150 New cost per share = $199,850 / 4,000 = $49.96 1/22/2016 Cash 101,880 Trading Securities 99,925 Realized Gain on Trading Securities 1,955 (2,000 x $51) - $120 = $101,880 2,000 x $49.96 = $99,925 Gray, Inc. management occasionally invests idle cash in stocks that are not intended to be held long term. Management treats these investments as trading securities. 1/5/2015 Purchased 4,000 shares of Gold Corporation common stock, which constitutes less than 10% of the outstanding shares of the company for $43.00 per share cash plus a total broker commission of $150. 6/15/2015 Received a cash dividend of $1.75 per share. 12/15/2015 Received a cash dividend of $1.80 per share. 12/31/2015 The market value of the stock is $50 per share as of year end, and a commission of $150 would apply to sell the shares. 1/22/2016 Sold 2,000 shares of Gold Corporation common stock for $51 per share minus $120 commission. Instructions: Prepare Journal entries for the above transactions. Solutions: Date Account Debit Credit 1/5/2015 Trading Securities 172,150 Cash 172,150 $43.04 cost per share with commission. (4,000 x $43) + $150 You would need this information if you sold less than all shares later. Cost per share = $172,150 / 4,000 = $43.04 7/15/2015 Cash 7,000 Dividend Revenue 7,000 4,000 sh x $1.75 12/15/2015 Cash 7,200 Dividend Revenue 7,200 4,000 sh x $1.80 12/31/2015 Trading Securities 27,700 $49.96 updated carrying value per share. Unrealized Gain on Trading Securities 27,700 [(4,000 x $50) - $150] = $199,850 - $172,150 New cost per share = $199,850 / 4,000 = $49.96 1/22/2016 Cash 101,880 Trading Securities 99,925 Realized Gain on Trading Securities 1,955 (2,000 x $51) - $120 = $101,880 2,000 x $49.96 = $99,925Explanation / Answer
Date Dr($) Cr($) 1/5/2015 Securities A/c Dr 172150 [4000*43+150] To Bank 172150 (Being Shares Purchased) 6/15/2015 Cash 7000 [1.75*4000] To Dividend 7000 (Being dividend received) 12/15/2015 Cash 7200 [1.8*4000] To Dividend 7200 (Being dividend received) 12/31/2015 Trade Securities 27700 To Unrealized revenue 27700 [4000*50-150]-172150 (Being Shares revalued) 1/22/2016 Bank 101880 [2000*51-120] Unrealized Revenue 1955 Securities 99925 (Being Securities Sold)
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